He also announced an audit of the chain of components

June 5, 2012 4:52 AM

He also announced an audit of the chain of components

Revolution in Volkswagen. The German automobile group, known for its golf course and its mode of consensual management, announced Wednesday the introduction of a new philosophy based on return on investment of its activities, leading potentially to transfers of assets and a cultural shock for its employees 343.000. After a fall of 90 of profitability in its automotive division since 2001, the European leader in the sector announced radical measures. Wolfgang Bernhard, new Member of the responsible Executive Board of the Volkswagen brand, stated that it would be "no sacred cows" and repeated that he was considering "all options", including closures of plants.

VW wants to increase its profit of 4 billion euros by 2008. But the Group remained vague on the nature of the benefit (net or operational) and on the basis of calculation (2004 or 2005). In total, he wants to improve its gross result of more than EUR 10 billion, including coming exclusively from the Volkswagen brand, EUR 7 billion and the rest from other brands (Audi, Skoda, Seat...).

The difference between the gross $ 10 billion and 4 billion net corresponds to the external factors that eat away at the profits. There is pressure on prices, high costs of raw materials, the weak dollar which reduced the benefit 2004 1 billion euros, the competition in China or sullen conditions in Europe. All these factors made dive the historical mark in the red in 2004 and divided by 3 the benefit of the Group since 2001.

"We only cold winds over the next two or three years and not help of new models", found Wolfgang Bernhard on Wednesday, in his first conference call financial since joining VW, in January.

After having prepared a harsh assessment of the situation, the young hope group and former number two of Chrysler announced great efforts of quality, cost reductions, a decrease in complexity, a freezing of investments, improvement of business performance and the launch of 5 to 10 additional models from 2008. Still in draft form, its program, called "ForMotionPlus", will succeed in 2006 ForMotion, the savings of EUR 3.1 billion plan which ends at the end. Wolfgang Bernhard and the Chief Financial Officer Hans-Dieter Ptsch only made their base of work. Concrete decisions will be finalized in November and will then have to obtain the approval of the Supervisory Board.

Outsource more

Two days after the onset of rumours concerning a possible closure of the Brussels site, Wolfgang Bernhard said that no decision on closure of factories had been made. However, he specified, "we look at all options, all the possibilities". He also announced an audit of the chain of components. According to analysts, VW could term outsource some parts of the production, such as the manufacture of seats. Its rivals, such as SAP or Renault, do already for years, but it would be a revolution for the German group.

The margin of manoeuvre of VW remains however limited because the group must comply with the collective agreement signed the year last with the IG Metall Union, which includes a guarantee of German jobs until 2011 for the majority of the employees 177.000, obtained in exchange for cost of EUR 1 billion staff reductions. "It expected concrete measures", according to Georg Strzer, analyst at HVB Equity, who believes, in any event, that VW health depends in large part of the course of the dollar. "The objectives are very ambitious," commented Jens Schaffner, auto analyst at Dresdner Kleinwort Kasserstein. But Wolfgang Bernhard is a highly experienced manager.