Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Cutting 30,000 jobs sounds dramatic. For Volkswagen AG it's a drop in the ocean, equivalent to just 5 percent of the global workforce. It will still employ about 600,000 people.

Little Changed
VW shares rose just 0.1 percent on news the automaker plans to eliminate 30,000 jobs
Source: Bloomberg
Intraday times are displayed in ET.

It's important VW is finally taking action to redress a chronic productivity problem.  The company employs more people than GM and Toyota combined, even though they all make a similar number of cars.

VW says the measures announced on Friday will improve the productivity of German plants by 25 percent and boost profit by 3.7 billion euros ($3.9 billion) a year -- which sounds impressive. But even after those measures take effect, the automaker will still have a huge number of employees compared to the number of cars it sells. 

Long Road Ahead
VW is cutting jobs to boost productivity but mass-market rivals do more with less
Source: Exane BNP Paribas & Gadfly calculations
nb The data reflect only consolidated sales and employees (not those working at joint ventures). VW excludes China, Porsche, Trucks and Financial Services but includes components. The post-job cuts figure includes 9000 new hires for electromobility and other new technologies. PSA excludes Faurecia and GEFCO.

One way for VW to improve that productivity ratio would be to sell more vehicles, but that's going to be tough.

The U.S. market looks like it's peaked and the outlook for growth in China -- which accounts for more than a third of VW's total sales -- could worsen. BMW AG warned in its third-quarter earnings that steep rises in debt levels mean "the risk of a potential financial crisis in China remains high." Meanwhile, VW continues to lose market share in Europe in the wake of the diesel-emissions scandal.

Instead of using the shift to electric vehicles to outsource more parts to suppliers, VW sounds like it plans to keep much of the work in-house. On Friday it signaled 3.5 billion euros of investments in "future-orientated" projects, including a pilot battery cell plant -- something that might turn out to be a flop

As a result of all this spending, the core VW brand is targeting an operating profit margin of just 4 percent in 2020. That's more than twice the current level, but still only a very thin cushion. French peer Peugeot SA managed a 6.8 percent automotive margin in the first six months of this year.

Given the influence of labor unions at VW, it's remarkable managers were able to secure any kind of reduction in the workforce. After today, VW is better-placed for the future. But its position is by no means secure.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. VW plans to avoid compulsory redundancies and will instead encourage early retirement. 

  2. Part of the difference is due to the fact VW has a truck-making operation and builds lots of components in-house.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net