Cost cutting necessary after 'decades of structural problems: Volkswagen CEO

Volkswagen plans to cut costs to address long-standing structural issues. CEO Oliver Blume said weak market demand in Europe and lower earnings from China highlight these problems, according to a detailed report by Reuters.

Volkswagen may close three factories in Germany, lay off thousands of employees, and reduce operations in remaining plants. It has set aside approximately 900 million euros to implement these changes the report detailed further.

According to the report, Volkswagen's planned cost-cutting programme was unavoidable to remedy "decades of structural problems" at the German carmaker, CEO Oliver Blume said in an interview published on November 3.

"The weak market demand in Europe and significantly lower earnings from China reveal decades of structural problems at VW," Blume told Sunday paper Bild am Sonntag.

Brief facts about Volkswagen

Volkswagen is a German automobile manufacturer based in Wolfsburg, Lower Saxony, Germany. Established in 1937 by the German Labour Front under the Nazi Party, it was revitalized into the global brand it is today after World War II by British Army officer Ivan Hirst.

The company is well known for its iconic Beetle and serves as the flagship marque of the Volkswagen Group, which became the world's largest automotive manufacturer by global sales in 2016 and 2017.

The group's largest market is China (including Hong Kong and Macau), which accounts for 40 per cent of its sales and profits. The name "Volkswagen" derives from the German words Volk and Wagen, meaning "people's car."

Views of the head of Volkswagen’s work council

The head of Volkswagen's powerful works council said last Monday that the carmaker plans to shut at least three factories in Germany lay off tens of thousands of staff and shrink its remaining plants in Europe's biggest economy as it plots a deeper-than-expected overhaul.

The carmaker has not confirmed those plans but on Wednesday it instructed its workers to take a 10 per cent pay cut, arguing it was the only way that Europe's biggest carmaker could save jobs and remain competitive.

Blume said the cost of operating in Germany was a major drag on Volkswagen's competitiveness, telling Bild am Sonntag that "our costs in Germany must be massively reduced."

There was no flexibility on the goals for cost-cutting, only on how they are to be achieved, he said. The carmaker has set aside around 900 million euros ($975.06 million) in its annual report for executing the measures, according to the paper. ($1 = 0.9230 euros)