BERLIN: Volkswagen AG Chief Executive Officer Matthias Mueller said the company will delay or cancel non- essential projects as pressure mounts to slash spending in the wake of the diesel-emissions scandal.
“We will review all planned investments, and what isn’t absolutely vital will be cancelled or delayed,” Mueller told some 20,000 employees at the German company’s headquarters Tuesday. “And that’s why we will re-adjust our efficiency programme. I will be completely clear: this won’t be painless.”
About 8 million of the Volkswagen cars that had software designed to cheat US emissions tests were sold in Europe, the company told German lawmakers in an October 2 letter.
Labour leaders are pushing VW to reel in research and development spending to protect jobs, while management wants personnel expenses reduced as well, people familiar with the situation said before his statement. Other options include lowering purchasing expenses and reducing sponsorship activities, with the extent of the measures dependent on the cost of the cleanup, said the people, who asked not to be named because the talks are private.
Fixing some 11 million rigged diesel vehicles is a costly prospect. Volkswagen has set aside 6.5 billion euros ($7.29 billion, Dh26.8 billion) for repairs already and is exploring options from a simple software upgrade to outright replacing some cars. It’s also facing fines that may reach $7.4 billion in the US alone, according to analysts from Sanford C. Bernstein Ltd.
Now the German company may be forced to tighten an “incredibly inefficient” organisation and lop funding out of a $17.4 billion research and development budget that was the world’s biggest last year, about equal to the combined figure for Apple Inc and Google Inc, said Arndt Ellinghorst, a London-based analyst with Evercore ISI. Volkswagen’s R&D spending was higher than at Ford Motor Co and General Motors Co combined.
“Where’s the innovation? Obviously not in diesel engines,” Ellinghorst said. “There’s a culture of spending and a lack of focus on efficiency in favour of striving to be bigger.”
Personnel costs
Volkswagen’s personnel costs at 16.7 per cent of sales are the highest since 1997, while purchasing costs are also at a peak, he said. Half the company’s board is composed of labour representatives, including powerful works council chief Bernd Osterloh.
More than 60,000 people work for Volkswagen in Wolfsburg, its headquarters city, where Mueller is expected to address employees until about midday.
Discussions over savings at Volkswagen are in early stages as the company focuses on repairs to satisfy regulators, the people familiar with the situation said. The company has until tomorrow to present a plan for fixing some 2.8 million diesel vehicles it sold in Germany.