DETROIT -- Volkswagen said Tuesday that it will cut 5,000 jobs by next year as it struggles to cope with lower earnings, unfavorable exchange rates, quality problems and a lack of hot products.
VW reported that net profit plunged 58% in 2003 to $1.4 billion from a year earlier and that its core VW brand lost money.
Chairman Bernd Pischetsrieder says the job cuts, about 1.5% of the global workforce, will come from early retirements and attrition and should help the company save $2.5 billion by 2005.
He warned that first-quarter earnings will be "lousy," lower than last year's weak earnings in the same quarter, but said that he expects an improvement in full-year operating earnings after one-time restructuring charges.
The Volkswagen brand is being squeezed at both ends of the price spectrum. Sales of a new version of its highest-volume model, Golf, launched last fall in Europe, have been below expectations as Renault, Opel, Toyota and Hyundai have crowded the subcompact segment with popular models.
Meanwhile, its push into the premium segments has been costly and has delivered mixed results. The Touareg sport-utility vehicle, priced at $36,000 to $58,000, has sold reasonably well. But the $66,500-to-$98,000 Phaeton sedan, which has a dedicated manufacturing plant in Dresden, Germany, has struggled to find an audience in any market.
Growing sales from 1998 to 2002 signaled a renaissance for VW in North America and buttressed earnings. But sales have been declining again because of a lack of a new product priced below $30,000 and because of well-publicized quality problems.
By Pischetsrieder's own admission, the company needs SUV-style vehicles priced at $30,000 or less to drive Volkswagen brand sales in North America, Europe and developing markets.
The engineering platform of the new Golf, designed before Pischetsrieder arrived in 2000, doesn't support crossover SUV development the way the chairman would like.
"An SUV in the volume segment would be a very good thing for us," Pischetsrieder said in a recent interview. A sport van, modeled after the classic VW Microbus, isn't due until mid-2006 and is expected to cost at least $30,000.
Volkswagen's and Audi's performance on J.D. Power and Associates' quality and reliability rankings have been well below the industry average the last few years.
"We have made improving quality a special priority because we know it's easier to keep customers than it is to have to win them back," Len Hunt, head of the VW brand in the USA, said in a recent interview.
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