LOS ANGELES -- Volkswagen will not stop trying to shave billions off its cost base just because its "ForMotion" efficiency program will be completed by the end of this year, Europe's largest carmaker said on Wednesday.
"That cannot come to an end in 2005," VW Chief Executive Bernd Pischetsrieder told reporters in Los Angeles, where he was attending the premiere of the new revamped Jetta compact sedan.
After stripping away excess fat of well over 1 billion euros ($1.32 billion) in 2004, VW expects ForMotion will help boost earnings by 3.1 billion euros this year.
Mass-market carmakers like Volkswagen and its German peer Opel, a unit of General Motors, are slashing costs and even jobs in an attempt to insulate themselves from stagnant markets, margin-eating overcapacity and spiraling raw material costs that have left many rivals licking their wounds.
VW lowered its 2004 earnings guidance by 600 million euros to a worst-case scenario of 1.9 billion euros in operating profits before special items, a goal that Pischetsrieder didn't retract in Los Angeles.
Speaking about the high steel prices, Pischetsrieder warned that they "probably won't go by without leaving a trace," as suppliers will likely be forced to raise their prices to account for higher input costs.
Steel companies like European giant Arcelor have announced their aim to increase annual contract prices by 20 percent to 50 percent starting early this year.
Although Pischetsrieder said the group succeeded in boosting deliveries last year from 5.1 million vehicles in 2003, VW is facing continued sluggish demand in its three key markets.
"We are not assuming that the volumes in Germany will change," he said earlier, adding that sales trends in the U.S. and Chinese markets will not change dramatically from last year.
Pischetsrieder said he was concerned about Chinese joint venture partner Shanghai Automotive's decision to take the leadership in a joint venture with British carmaker Rover.
"We decided not to try to prevent it, but still it's cause for some worry," VW's CEO said.
JETTA EXPECTED TO FUEL SALES
The relaunch of the Jetta, sold as the Bora outside the United States and based on the group's flagship Golf hatchback, is a key element in an expected turnaround of its U.S. business.
With a total of 82,221 Jetta sedans sold in the United States during 2004, the model contributed over 32 percent of all VW brand sales in the world's largest car market.
The company has been besieged though by the steep rise in the euro-dollar exchange rate, an aging stable of models in the U.S. and an unforgiving price war in the market.
While the company has done its best to steer clear of incentives in order to preserve margins and resale values as much as possible, it has cost VW severely.
U.S. car sales dropped by more than 15 percent in the past year to just 256,111 vehicles, shy even of the 260,000 sold by its German premium rival BMW.
VW brand sales chief Georg Flandorfer wouldn't comment on the sales target for the new Jetta, but he did say that thanks partly to its relaunch, the company is expecting VW brand car sales in the United States to remain at least stable this year.
Volkswagen, which started hedging its dollar exposure relatively late, expects to post an operating loss of around 1 billion euros in North America for 2004 and said it was not optimistic about breaking even this year despite the scheduled launch of the new Jetta and the larger Passat.
For the current year, VW finance chief Hans Dieter Poetsch said last month the group has hedged around 60 percent of its U.S. revenues exposed to currency fluctuations.