Volkswagen pays 14 billion fine in U.S. and then cuts about 30,000 jobs worldwide, including 23,000 in Germany.
Volkswagen is to axe 30,000 jobs as part of a restructuring designed to help the German carmaker recover from the diesel emissions scandal.
The cuts will be in the core VW business, as opposed to its other brands such as Porsche, Audi and Seat, and 23,000 will be in Germany. There will also be job cuts in Brazil, Argentina and North America.
Matthias Müller, the chief executive, said the move was the “biggest reform package in the history of our core brand”.
VW is still reeling from the emissions scandal that engulfed the company last year. The company admitted that 11m diesel cars had been fitted with software that allowed them to cheat tests. It has set aside billions of euros to deal with the crisis, which led to VW’s first annual loss in more than 20 years, but the carmaker faces a string of legal and regulatory cases worldwide.
VW has agreed a settlement in the US to pay up to $15bn (£12bn) to authorities and owners of some of the nearly 500,000 affected vehicles.
Herbert Diess, the head of the VW brand, said the cuts would make the carmaker “leaner and more efficient”. The company intends to shift more investment and resources into developing electric cars and wants to launch 30 electric-powered vehicles by 2025.
“It’s a major step forward and undoubtedly one of the biggest in the history of the company,” Diess said. “I am very sorry for those affected, but the situation of the brand at the moment gives us little room for manoeuvre.
“We are tackling the problems at the root, even if it’s painful. Many didn’t think we could do it. Today, we have shown that Volkswagen can and will change.”
The cuts were announced at a press conference at VW’s headquarters in Wolfsburg on Friday, after weeks of talks with trade unions. Bernd Osterloh, a senior employee representative, welcomed the fact that “the next generation of electric vehicles will be made here in Germany, not abroad”.
VW employs 600,000 people worldwide, including 120,000 in Germany. This is far more than its rivals Toyota and General Motors, with whom it battles for the position of the biggest carmaker in the world. Toyota employs roughly 350,000 people while GM has 200,000.
Analysts said the cuts helped VW to rethink its strategy as well as shore up its balance sheet.
Christian Stadler, professor of strategic management at the Warwick Business School, said: “This is not just about cutting costs because of the emissions scandal but moving to a new strategy in a rapidly changing car market.
“There are three reasons behind this shedding of jobs, which will have been agreed with the unions beforehand and will come mostly from early retirements as 23,000 are in Germany.
“First Volkswagen is responding to the potential lawsuit tsunami heading its way from all over the world due to the emissions scandal, with $18bn of fines looming in the US alone.
“Secondly, Volkswagen has fallen behind in terms of profit margin per vehicle against its rivals, even lagging behind Peugeot.
“Thirdly, electronic vehicles are the future and they need less people to build them in the production process.
“China – the biggest car market in the world – has announced it will bring in an e-vehicle quota starting in 2018, where 8% of all vehicles sold in China have to be e-vehicles, and that will rise to 12%. It means VW would have to sell 60,000 e-vehicles in China by 2018, and hybrids only represent half a point. That is a huge undertaking.”
Stadler also said that Norway’s sovereign wealth fund, a shareholder in VW, had been putting pressure on the carmaker to become more environmentally friendly.
Shares in VW dipped 0.8% following the announcement and remain roughly a third lower than before the emissions scandal emerged.
Erik Gordon, a business professor at the University of Michigan, said that VW needed to go further.
“The deal may be the best the company could negotiate with labour but it’s not a victory for either side,” he told Reuters. “The cuts are too small to make VW cost competitive with Toyota and other global rivals.”
TCI, the British hedge fund that has criticised the management of VW and pushed for change, said the company now needed to actually make the cuts.
Ben Walker, partner at TCI, said: “They’ve just to deliver now. It’s easy to talk. They now have to deliver and execute.”