VW steps up job cuts plan

FRANKFURT - Volkswagen still needs a bold stroke on slashing costs in Europe if it wants to extend a rally that has boosted its stock 30 per cent this year as a favoured turnaround play, investors say.

VW plans early retirement and buyout offers to thin out what it calls thousands of excess staff on its German payroll.

It said it would step up the pace of job cuts without breaking a landmark labour accord it struck last year that promised no lay-offs for 103,000 staff in western Germany through 2011 in return for freezing wages until early 2007.

But the company declined to comment on media reports yesterday that it wants to eliminate up to 14,000 jobs in Europe - 10,000 of them at home in high-wage Germany - by 2008 to help return its flagship Volkswagen brand to profit. The union IG Metall had no comment.

Shares in the world's fourth-biggest carmaker have outperformed an index of its European peers by nearly 10 per cent this year, but have moved sideways for just over a month as investors wait to see how things play out.

The stock was trading around 43.92 yesterday, off a year high of 45.19 touched on July 29.

Commerzbank analyst David Arnold has his VW stock rating under review but questioned how much upside was left after the gains this year that he called "an amazing run for a stock like VW. I think it is pretty fairly valued at the moment".

The tough line on cutting costs in Europe that top Volkswagen officials made at an analyst conference last month and reiterated this week simply reiterated VW's stance, he said.

Arnold said the company and Wolfgang Bernhard - the new head of its Volkswagen brand group - were approaching its competitiveness problem in the right way, but had little leeway.

"This is not like Chrysler, where you had a lot of fat to cut out and Bernhard was able to cut out a lot of dead wood. This is still the heartland of German industry," he said.

"If Bernhard disappoints the high expectations of the market in terms of restructuring the company in Germany then you could see some slippage of the stock," he added.

Labour relations at VW are in flux, given allegations that senior labour leaders were too cosy to management and after the departure of long-time personnel chief Peter Hartz, who left to take responsibility for a bribery scandal in his department.

- REUTERS