Volkswagen AG warned that as many as 20,000 jobs could be cut in the next three years under a restructuring plan announced Friday, as Europe’s biggest automaker tries to trim costs at home and improve its tiny U.S. market share.
The announcement came as the company reported a preliminary 2005 net profit of 1.1 billion euros ($1.3 billion), or 2.90 euros ($3.47) a share — up 61 percent from 697 million euros, or 1.79 euros a share, the year before.
That beat analysts’ forecasts of 834 million euros ($998 million).
“Up to 20,000 direct and indirect employees within the Volkswagen Passenger Car brand could be affected by this restructuring program,” the company said in a statement after a meeting of its board.
Volkswagen, which employs more than 340,000 workers worldwide, also said it would look at “adjusting” capacity at its production plants.
The company would not give details or a breakdown for what percentage of direct employees would be cut ahead of its annual meeting March 7.
Chief Executive Bernd Pischetsrieder said the program’s primary aim was not to cut jobs, but rather to bring productivity “up to international standards.” Speaking at Volkswagen’s Wolfsburg headquarters, he did not offer details but noted that the company has an agreement with labor unions that prevents outright layoffs.
“We have a collective agreement and it is not our intention to quit that agreement,” he said. “The point is not to cut 20,000 jobs.”
Pischetsrieder added that the Volkswagen brand’s “earnings level is still unsatisfactory.” He said last year’s profit growth was due to a previously announced cost-cutting program, and also cited the company’s U.S. performance.
“We continue to incur significant losses on cars exported from Germany to the USA,” Pischetsrieder said. “In order to ensure a secure long-term future for the group, we must act rapidly and determinedly to eliminate the problems that we face.”
The restructuring program was not viewed as a surprise by analysts, many of whom said the company was moving forward to save money so that it could ultimately spend more money developing new models for American buyers.
“They only have 1.5 percent of the market” in the U.S., noted Adam Jonas, a European auto analyst for Morgan Stanley in London.
He said that, rather than direct layoffs, the restructuring program likely would feature early retirements and divesting or spinning off component groups.
“I think about half is going to be early retirement and the other half will be from divesting the components,” he said. “They need to tighten the belt so they can go out and spend money on products that can gain share in the U.S.”
One of those models includes the fifth-generation Golf, on sale in Europe since 2003. A U.S. version is slated to go to market in two- and four-door versions this summer.
Volkswagen began an ambitious cost-cutting program last year. In September, it said would build its new sport utility vehicle in Germany after labor groups agreed to reduce production costs to keep it from being built abroad.
It also has said it would decrease its work force of 103,000 in western Germany, offering early retirement packages and severance in hopes that employees would leave voluntarily.
The company said sales for last year rose 7 percent 95.27 billion euros ($114 billion) in 2005, compared with 88.96 billion euros in 2004. Operating profit increased to 2.79 billion euros ($3.3 billion) from 1.64 billion euros the year before.
Without providing any more detail, Volkswagen said its luxury unit, Audi AG, posted a significant increase in earnings.
Volkswagen said the comparison figures were adjusted because of amendments to International Accounting Standards. Full figures, including fourth quarter results, are scheduled to be released next week.
Besides announcing the preliminary figures, the company also said it planned a 2 billion euros ($2.4 billion) bond buyback program. It also proposed raising its dividend 10 percent to 1.15 euros ($1.37).
Last year, the company sold 5.24 million vehicles, an increase of 3.2 percent compared to 2004, due in part to demand in Western Europe.
But in the U.S., it has suffered, prompting the company to warn last month that its operations there likely would lose around 1 billion euros in 2005. The company already said last year it won’t break even in the U.S. in 2006.
Earlier this week, French car maker Renault SA posted a net profit of 3.37 billion euros, ($4.03 billion), while Italy’s Fiat SpA earned 1.33 billion euros ($1.62 billion) in 2005, reversing a 1.63 billion euros loss in 2004.
In contrast, U.S. automakers have been suffering. General Motors Corp. lost $8.6 billion in 2005 amid high health, pension, labor and materials costs. Ford Motor Co. earned $2 billion for the year, down 42 percent from a year earlier.