Cost Cutting Volkswagen Should Trim More Fat

Volkswagen's chief labor representative has surprisingly claimed that the carmaker could ramp up its efficiency drive even further.
Bernd Osterloh is head of the VW Works' Council.

Volkswagen’s top labor representative began a news conference last week by very clearly managing expectations.

“Today you won’t hear a statement like last year, when I described our operations in the U.S. as a catastrophe,” said Bernd Osterloh, the powerful head of VW's works council.

However, Mr. Osterloh, who also sits on the German automaker’s supervisory board, had some strong words about the efficiency program decreed last summer by VW chief executive Martin Winterkorn.

The program aims to cut costs by €5 billion ($5.6 billion) and boost profits. At a meeting shortly before Christmas, Mr. Winterkorn told several thousand managers that the cost-cutting move was urgent, that the company should trim its fat in good times rather than bad. Last year, the VW brand sold more vehicles, six million, than ever before.

For Mr. Osterloh, the efficiency program, which some workers' representatives would view as a threat, doesn't go far enough. “We are capable of saving significantly more than €5 billion,” he said bluntly.

But to do this, everyone in the company, which is Europe’s biggest carmaker, must display more discipline, he added.

It becomes difficult when the production cost is higher than the part price. Bernd Osterloh, Head of Wolkswagen's Works Council

“From initial development all the way to production, the processes must be carried out more efficiently and strictly,” he said. This was a direct reference to the proliferation in recent years of models and features. Management statements have focused on the high number of ornamental seams and exterior mirrors. Mr. Osterloh wants such items to be scrutinized early in the developmental phase to see if they make financial sense. He is irritated by the low number of units produced.

He also said the plan to set up a second location for producing electric motors should be reconsidered given the low price for gasoline.

Mr. Osterloh is bothered by the costs for procurement, logistics and consignment when a part is produced for a low number of units. “It becomes difficult when the production cost is higher than the part price,” he said.

But overall, he said he was pleased with the way the cost-cutting program was being implemented: “Things are going better than many people think.”  The new car buyer should not be aware that this sort of savings program is underway, and up to now, no buyer has noticed, he said.

Mr. Osterloh’s comments could be interpreted as a greeting of sorts for Herbert Diess, the incoming head of the VW-branded part of the VW group. The longtime BMW manager will begin his new job in October, and many expect him to push the efficiency program further.

At BMW, Mr. Diess had the reputation of keeping a relentless eye on costs and making a big contribution to BMW’s success.



Christian Schnell is an automotive industry reporter and editor at Handelsblatt. To contact: [email protected].