BERLIN (Reuters) -- Volkswagen CEO Martin Winterkorn said that the multi-brand automotive group "urgently" needs higher profit to help fund future expansion.
"Over the short-term, we urgently need more efficiency and higher profit," Winterkorn told a staff gathering today at VW's main factory in Wolfsburg, Germany.
Winterkorn plans to cut costs by 5 billion euros ($6.7 billion) a year from 2017 as part of efforts to streamline work processes at all levels of VW's namesake brand, its biggest division by revenue and deliveries.
Europe's largest carmaker keeps boosting sales to new records but profitability gains are not keeping pace with the 12-brand group's rapid expansion.
After telling managers on July 14 to step up their game, Winterkorn was today addressing a special closed staff gathering in Wolfsburg.
Analysts have said the cost-cutting could expose rare differences between management and labor at VW where employee representatives, occupying half of the 20 seats on the carmaker's supervisory board, enjoy considerable influence over corporate decisions.
While there is no suggestion that the carmaker plans to cut any jobs, the efficiency drive also indicates that VW workers in Germany could be facing more difficult times ahead after years of generous wage increases and annual bonus payments.
Bernd Osterloh, VW's works council chief who also sits on the supervisory board, has urged management to cut out its own mistakes as it reviews corporate strategy. Management must prepare production plans -- especially in car-body making -- more carefully to reduce unnecessary overtime, and improve sales operations in foreign markets, he wrote in an internal document dated July 17 obtained by Reuters.
"What's at stake is an intelligent use of our resources rather than cost-cutting," said Osterloh, who was due to address today's gathering after Winterkorn.
At 1.8 percent, the VW brand's first-quarter profit margin lagged a margin target of at least 6 percent because of fixed costs that it says are high relative to Toyota.
The VW brand's 2013 profit margin was 2.9 percent, compared with auto division margins of 8.8 percent at Toyota and 9.5 percent at Hyundai Motor Co.
"Costs are slowly beginning to run out of control," said Stefan Bratzel, head of the Centre of Automotive think tank near Cologne. "Inefficiencies are growing, that cannot be entirely avoided at a company as big as VW."
To boost efficiency across its whole 310-model empire, Winterkorn has urged "painful action" such as ceasing to make low-profit cars, reining in costs of r&d as well as new factories, speeding up model launches and catering more to the needs of foreign markets.
"It's not just the world outside that is putting us to the test," the CEO told managers on July 14. "We have taken a critical look at ourselves and found that we're also dealing with homemade problems."
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