Volkswagen Brand to Cut More Costs as Europe Car Market Shrinks

Volkswagen AG (VOW), Europe’s largest automaker, is stepping up efforts to reduce costs at its namesake passenger car brand to offset shrinking demand in its home region, where new-car sales are sliding to a 20-year low.

VW sees “need for further belt-tightening over the coming months at all levels, in all departments, in all regions and at all plants,” the Wolfsburg, Germany-based company said in a statement today.

Volkswagen steered through the European car industry gloom better than most mass-market peers, mainly because of its large presence in China and profits from upscale brands such as Porsche and Audi. First-half operating profit at the VW brand passenger car division, the manufacturer’s biggest unit by vehicle sales, declined 34 percent from a year earlier to 1.49 billion euros ($2 billion).

“We need solid earning power and a competitive cost position,” Arno Antlitz, VW brand board member for accounting and controlling, told 18,000 employees at a meeting in Wolfsburg, according to the statement.

The brand’s diversified regional presence is a competitive advantage and will be expanded further, he said.

“We are able to invest record sums in our future projects in spite of the crisis,” Antlitz said.

Profitability Targets

VW said earlier this month that it plans to boost profitability at its mass-market brands even with the timing of a rebound in its home region uncertain. It expects the loss-making Seat and the namesake VW badge to contribute more to the group’s goals of becoming the world’s largest automaker by 2018. Higher profit margins are tied to expanding beyond Europe and sharing more technology between the brands to lower costs.

The VW car brand is forecast to lift its operating profit margin to more than 6 percent of sales from 3.5 percent last year, according to a Sept. 9 presentation by Chief Financial Officer Hans Dieter Poetsch. Seat, which posted an operating loss of 156 million euros last year, has a target profit margin of more than 5 percent. Skoda will have a margin of 6 percent to 8 percent, after posting 6.8 percent in 2012. The presentation didn’t set a date for when the targets would be achieved.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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