Volkswagen Plans Sweeping Improvements to Close Returns Gap

Volkswagen AG is set to outline broad plans to lift returns across its stable of mass-market brands as the carmaker seeks savings in the costly transition to electric cars.

(Bloomberg) — Volkswagen AG is set to outline broad plans to lift returns across its stable of mass-market brands as the carmaker seeks savings in the costly transition to electric cars.

The manufacturer’s main target is the flagging VW brand, which for years has struggled to match performance at competitors like Stellantis NV, according to a person familiar with the plans. That’s left the company overly dependent on luxury labels Audi and Porsche for profits.

Chief Executive Officer Oliver Blume is seeking to more than double profitability at the company’s namesake brand to a record 6.5%, the person said, declining to be named discussion private information. For the volume group, which also comprises Seat and Skoda, VW is seeking additional profit of €3 billion ($3.2 billion) annually with a targeted return of between 5% to 8%. Audi is also a focus for improvements on innovation, the person said.

Bloated processes, high development spending and internal competition have long hampered the maker of the Golf and Tiguan. Blume’s plans, set to be unveiled at an investor meeting next week, follow a long line of CEOs seeking to make improvements, which often got watered during talks with VW’s powerful labor representatives. Handelsblatt earlier reported on the profitability targets.

Read more: Volkswagen Vows to Keep China Prices Firm in Margin Battle

As part of the plans, VW will pool production across more brands with its main plant in Wolfsburg potentially lowering capacity to 600,000, the person said. The site at one point was on course for output of 1 million cars. With the switch to making electric vehicles requiring fewer workers, VW may cut or reduce some shifts across factories. So far, VW isn’t planning job cuts with a large number of retiring workers likely to suffice to reduce the workforce.

Joint development and production of the Skoda Superb and VW Passat models has already saved €600 million, according to a letter by VW brand head Thomas Schäfer posted on the company’s intranet. VW is planning similar steps for smaller electric cars as part of Seat, with VW factories producing a range of brands for billions of euros in savings over the next few years, Schäfer said.

While VW continues to deliver strong profits, pushing through deeper changes at the carmaking behemoth have become central for Blume in the wrenching switch to EVs and increasing competition in China, its biggest market. The company’s rolling five-year spending plan has ballooned to €180 billion due to spending on software, EVs and turning around a market share slide in China.

Read more: VW to Boost Spending to Catch Up on EVs, Stave Off China Slide

Blume will also target savings in procurement, marketing as well as reducing the breadth of VW’s model lineup, the person said. At Audi, managers are facing deeper changes.

The luxury brand, where profitability has remained high after getting preferential treatment during the chip supply crisis, needs to step up on innovation to better match competitors like BMW AG. In future, Audi CEO Markus Duesmann will focus on a vehicle platform for mid-segment cars and closely coordinate any models plans pushing into VW brand or Porsche territory.

More stories like this are available on bloomberg.com