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Volkswagen may cut 20,000 jobs

Volkswagen may cut up to 20,000 jobs in the next three years at its core VW brand in a sweeping restructuring programme.

india Updated: Feb 11, 2006 16:34 IST

Volkswagen may cut up to 20,000 jobs in the next three years at its core VW brand in a sweeping restructuring programme that could also lead to a reduction in production capacity, it said on Friday.

Shares in the world's fourth-largest carmaker rose more than 10 percent in heavy volume to a high not seen in more than three years on the news, helped as well by forecast-beating 2005 earnings and a upbeat outlook for 2006.

"The restructuring programme...underlines management's commitment to reaching a pretax profit of 5.1 billion euros ($6.1 billion) in 2008," said Hans-Peter Schupp, managing director of Main First asset management, calling the stock "dirt cheap".

Just a day after French rival Renault unveiled a strategy plan based mainly on sales growth and new models, VW announced a programme that includes reorganising its car parts business, improving productivity and using its plants fully -- in part by adjusting capacity.

"In the next three years up to 20,000 direct and indirect employees within the Volkswagen Passenger Car brand could be affected by this restructuring programme," it said in a statement, giving for the first time a concrete number of jobs at risk.

Chief Executive Bernd Pischetsrieder told reporters later he had no plans to shut any plants or cancel VW's in-house wage agreement that protects the 100,000 highly-paid workers at its six western German plants from layoffs through the end of 2011.

The carmaker had already promised to make thousands of German jobs redundant, but only through early retirement and voluntary termination packages that could cost Volkswagen hundreds of millions of euros in restructuring charges.

While German union IG Metall said in a statement it too sees the necessity for improved productivity and efficiency, it added the plan "raises more questions than it answers".

As if to prove the point, VW declined to clarify just what "adjusting capacity" meant, if no factories were to be closed.

Balance sheet strengthened

Due primarily to a 3.5 billion euro ($4.2 billion) gross earnings boost from its "ForMotion" efficiency programme, operating profit rose 70 percent to 2.79 billion euros even after a hefty one-off charge of 351 million euros last year.

This translates to a margin of 2.9 per cent, with revenue climbing 7 per cent to 95.3 billion, but remains below both Renault's 3.2 per cent and PSA Peugeot's 3.4 per cent.

VW added that it expects operating profit before special items to rise and revenue to increase slightly this year.

Profit before taxes, a key figure since it includes the contribution from VW's two joint ventures in China, rose nearly 60 per cent to 1.72 billion euros. After tax, the group earned 1.12 billion euros, a gain of just over 60 per cent.

Volkswagen proposed raising its dividend to 1.15 euros per ordinary share from 1.05 euros the previous year.

Net cash flow at its core automotive division gained 30 percent to 2.39 billion, helped by restrained investment spending. Analysts closely watch its cash management due to VW's past difficulties to finance growth from its main business.

With its balance sheet strengthened, VW plans to buy back up to 2 billion euros in bonds issued by its automotive division. It also plans to cancel all its 41.7 million treasury shares.

This would increase Porsche's voting stake to 21.3 percent from 18.5 percent and the German state of Lower Saxony's holding to 20.9 per cent from 18.2 per cent.

Volkswagen stock closed up 9.4 per cent at 55.40 euros, the day's leading gainer among European car sector stocks.

First Published: Feb 11, 2006 12:09 IST