VW to eliminate 30000 jobs to cut costs after scandal

Volkswagen will cut up to 30,000 jobs globally as it attempts to recover from the biggest scandal in its history.

The company described the plan as the most radical in its history. It will invest about $3.7 billion in its German manufacturing plants, and plans on a 25 percent improvement in productivity in coming years.

Volkswagen has been making cars in Wolfsburg for nearly 80 years and employs 114,000 staff in Germany.

Herbert Dies of Volkswagen AG, speaks at the 2016 International CES trade show in January. Reports have projected job cuts of 30,000 in the next few years.

Many analysts and investors nonetheless welcomed the deal, sending the shares more than 2 percent higher to the top of the blue-chip DAX index in early Frankfurt trading.

“We have agreed that forced redundancies are ruled out until end 2025”. Despite all these measures, Volkswagen will create around 9,000 new jobs by investing in the electric vehicle technology.

Reducing headcount by almost 5 percent will come through attrition as the automaker agreed to refrain from forced layoffs until 2025, the German company said today.

What this plan really represents is a culture shift at Volkswagen. This compromise leaves the profitability at the carmaker still lagging behind its rivals. Toyota has 346,000 employees worldwide compared with 624,000 at Volkswagen. How big of an effect are they hoping to get from the job cuts? “Whether it’s enough is another question”.

The company said at a press conference Friday that it will continue to push toward a more “environmentally friendly” future that involves heavily-digitalized cars and next-generation mobility.

VW is hopeful that its labor restructuring will help the company to a 4 percent profit margin by 2020, up from 1.6 percent today. “That’s a clear sign that things are not going well for a company”. In addition, a special law gives Volkswagen workers veto power over plant closings.

Works council head Bernd Osterloh said the “future pact” had identified Germany, and not VW plants elsewhere, as the focus of the company’s electric auto production. With these moves, Volkswagen will in time be able to compete with them. The scandal worsened economic positions of the vehicle manufacturer. The company admitted that 11m diesel cars had been fitted with software that allowed them to cheat tests. But high volatility of currencies in these markets and weak economies in the wake of the financial crisis caused VW sales in Russian Federation and Brazil to plunge.

“Volkswagen is in a hard situation”, said Bernd Osterloh, the chief of Volkswagen’s works council.