Cost Cutting is Part of the Plan for Volkswagen

Many automakers, including Volkswagen, share the same fear and that is a return of the Great Recession which took place in 2008.

This recession didn’t simply affect the US economy, but it was a global issue that was felt by all automakers. Instead of getting caught behind and with too many expenses, most automakers are watching the numbers carefully to make certain they avoid any recession. With record sales for the past few years, the time has come when sales are expected to dip and several companies are making plans to address the needs of a decline in sales numbers.

Volkswagen has a Plan

One of the largest automakers in the world is making cuts that will help reduce costs by$3.4 billion. Volkswagen announced plans to trim this amount by cutting some of the engine and gearbox offerings that are present in Europe. The European market is one of the most impactful areas where Volkswagen models are sold and trimming 25 percent of the powertrain offerings will be the first step toward achieving the goal. Additionally, Volkswagen will simplify the complexity of its lineup to delete some of the trims that have been on the lower end of the customer demand spectrum.

Cutting Back the Workforce

In addition to cutting the production of the trims that are chosen the least and a quarter of the powertrain offerings, the VW team will reduce administrative expenses as part of this cost-cutting measure. This will result in a reduction of the workforce by 5,600 employees while an additional 9,600 have already signed early retirement agreements. This will allow the VW team to streamline its operation and place the focus on models that offer the greatest value and are the most profitable.

Increases in Other Areas

The goal of cutting expenses by this amount will be followed by the same goal to be achieved by 2023. While cutting these expenses and reducing the workforce, Volkswagen plans to increase plant productivity by thirty percent by 2025. Working toward an increase in productivity could boost profit margins to six percent by 2022, which would allow the team to achieve its goal three years earlier than expected. It’s important for VW to achieve this goal at that time with the plans that are in place to invest in more mobility solutions around the globe.

Will Other Automakers Follow Suit

We’ve already reported that Ford will no longer produce sedans in the near future and GM has also announced a reduction in its sedan and car lineup in the US. GM also announced the closing of five plants in North America to aid in the reduction of costs. With three names we know well, you can expect other brands to trim their model lineups in the future to place an emphasis on the models that are the most profitable. Hopefully, making these changes will allow the automotive market to avoid another version of the Great Recession of 2008.