Technological change sweeping industry forces auto makers to
step up cost cutting
By William Boston
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 14, 2019).
BERLIN -- Volkswagen AG plans to cut as many as 7,000
administrative positions over the next five years amid an
industrywide scramble to slash costs and make room on the balance
sheet for heavy spending on electric and self-driving cars.
The German auto maker said Wednesday that the job cuts will be
at its namesake VW brand, the company's biggest division. The cuts
would amount to about 6% of the brand's domestic workforce of
119,394 employees.
The VW brand sold 3.7 million cars last year, more than a third
of Volkswagen's total vehicle sales, but high costs are eating away
at its meager profit margins.
Across the globe, auto makers and their suppliers are
overhauling their businesses to counter slowing sales in the
world's largest auto markets and improve profits while funneling
more money toward innovative technology.
General Motors Co. said last year it would shed as many as
14,800 factory and salaried workers and shut several factories in
the U.S. and Canada, cutting costs by $4.5 billion to free up cash
to invest in electric and self-driving vehicles.
Ford Motor Co. is looking to trim salaried staff globally as
part of a broad restructuring that aims to cut $11 billion in costs
over the next three to five years. In Europe, it expects to
eliminate thousands of jobs, close plants and phase out low-profit
models in an effort to restore profitability to the money-losing
region.
Tesla Inc., a leader in making luxury electric cars, continues
to increase the pressure on traditional auto makers to field new
plug-in models. Chief Executive Elon Musk is expected Thursday
night to introduce the Model Y compact sport-utility vehicle to the
company's fans and customers near Los Angeles, adding a second
mass-market vehicle to its lineup as the all-electric brand aims to
move from niche to mainstream.
Volkswagen, the world's biggest auto maker by sales, said its
efforts to restructure and save in procurement, raw materials and
other areas are expected to boost profit by EUR5.9 billion ($6.7
billion) annually after 2023.
Meanwhile, it disappointed investors with the news that it was
setting aside plans for a partial listing of its trucks division as
a way to boost the company's valuation. Citing unfavorable market
conditions, Volkswagen said it would revisit a possible listing for
Traton AG when markets improve.
"We're surprised and disappointed," Arndt Ellinghorst, an auto
analyst with brokerage Evercore ISI. "Most investors agree that it
would have been good to see action from VW with respect to value
unlock -- this was a clear first step."
Volkswagen isn't the only German auto maker under pressure.
Luxury-car makers BMW AG and Daimler AG, which makes Mercedes-Benz,
have cast off their decadeslong rivalry to combine forces to
develop self-driving car technology and new mobility services such
as car-sharing and ride-hailing.
The digitization of routine processes and products is shaking
the industry. Vehicles and their manufacture, largely unchanged for
a century, are being rethought, jeopardizing jobs from the office
tower to the factory floor.
At the same time, auto makers are hiring armies of software
programmers and developers to keep up with the technological
change. The job cuts at the VW brand are expected to be partially
offset by 2,000 new hires suited for developing electric
vehicles.
"Our core business is still the car," said Christian Senger,
VW's newly appointed board member in charge of software
development. "But as we know more about the behavior of our
customers, we can improve our cars."
The auto industry now finds itself in direct competition with
Silicon Valley tech giants such as Tesla, Alphabet Inc.'s Google
and ride-hailing behemoth Uber Technologies Inc. Investors sizing
up the competitors have bid down the share prices of conventional
auto makers.
Ralf Brandstätter, the VW brand's chief operating officer, said
Wednesday it would invest EUR4.6 billion in new
information-technology equipment and systems, largely to digitize
routine manual tasks in the company's administrative offices.
The latest workforce reductions come on top of those outlined in
a 2016 plan. Under the "Pact for the Future," 23,000 jobs, about
19% of the VW brand's head count in Germany, will be eliminated
through natural fluctuation and early retirement.
Falling profitability has pressured Volkswagen's core brand,
which generates nearly half of the group's revenue, but less than a
third of its profit. The VW brand said this week that operating
return on sales last year was 3.8% -- below a target of at least 4%
and 2017's 4.2% -- reflecting in part heavy investment in new
technology. The company is targeting a 6% margin in 2020.
"We must do considerably more in order to deal with the
challenges that are coming after 2020," Mr. Brandstätter said. "We
will increase the pace of our transformation considerably in order
to make Volkswagen fit for the electric and digital age."
Speaking at the annual Geneva Motor Show last week, PSA Group SA
CEO Carlos Tavares predicted that the coming years would see a
major shakeout in the industry as costs for developing new
technology separate the weak from the strong.
"The period that goes from now up to 2030 is going to be chaos,"
Mr. Tavares said. "It's going to be extremely selective. Because
not all the companies are going to be as Darwinian as some others
in terms of adapting to the new world. Not all the companies are
going to be able to master the new technologies."
Volkswagen is determined to make the "People's Car" of the
electric age. It has created standardized technology as the basis
for around 70 electric vehicle models it plans across its brands in
the coming years. It aims to produce roughly 22 million electric
vehicles over the next decade, nearly half bearing the VW badge --
which is why Volkswagen is rushing to shore up the brand's
profitability.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
March 14, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Aug 2024 to Sep 2024
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Sep 2023 to Sep 2024