FRANKFURT -- The new head of Volkswagen's VW Brand Group, Wolfgang Bernhard, pledged on Wednesday not to spare any "sacred cows" in his drive to restore lustre to its ailing core brand.
"We cannot afford, moving forward, that there is anything we cannot do. We have to look at all possibilities in order to face the challenges ahead of us," Bernhard said in his first address as head of VW Brand Group.
Overall, Europe's biggest carmaker is targeting savings and performance enhancements of more than 10 billion euros ($12.19 billion) to improve its net profit by 4 billion euros by 2008, a source close to the company said.
Dubbed "ForMotion Plus" in a reference to Volkswagen's current ForMotion program ending this year, the new efficiency drive targeted for 2006-2008 should allow the group to continuously improve earnings during the period.
Bernhard said there were no plans at this point for any drastic steps such as shutting an assembly plant or pushing to change VW's onerous wage agreement with German workers, but the former star manager from Chrysler added all options were open.
"We will turn every stone on the way, nothing will be unchecked and there will be no sacred cows," he said.
VW shares slid more than 3 percent as Bernhard delivered a bleak message to investors betting on a more positive outlook.
"There is nothing coming that is basically positive, there is no warm wind coming from behind, we have all cold wind in our faces and this is how we see our immediate future," he said.
Volkswagen stock closed down 2.8 percent at 39.69 euros after a low of 39.34, while the DJ Stoxx European autos index gained 0.8 percent.
"The recovery of the sick patient VW brand is likely to take longer and will be more difficult than the consensus in the financial community so far anticipated," analyst Robert Heberger from bank Merck Finck said in a note to clients, maintaining his "hold" rating and price target of 38 euros.
As VW's powerful works council reels over accusations of cronyism with top executives, the shares had hit a high not seen since January 2004 on speculation that Bernhard might seize the chance to implement unpleasant changes.
"Investors are mistaken in thinking it will get easier to push measures past the unions following the scandal. After accusations that the works council was too friendly with management, IG Metall will strike a hard-line stance to regain credibility among the work force," said Heino Ruland, head of research and sales at Frankfurt brokerage Steubing.
WEAKER DOLLAR AHEAD
Deteriorating net pricing, a weaker dollar and a mass model offensive that effectively ended with the launch of the Passat saloon would mean the VW brand needs to boost gross earnings by 7 billion euros to reach an acceptable return, VW said.
Despite the harsh reality ahead, Bernhard said he was not going to push to change an accord struck last year with its high-wage German workforce that guarantees jobs through 2011.
"That's not the right way to start. The right way to start with is what can we do within the tariff agreement and to execute what we can do," he said.
The group's VW brand instead aims to save over 3 billion on material costs, 1 billion on production costs, 500 million on overheads and 500 million on warranty costs, while improving sales and distribution performance by over 2 billion.
According to a source familiar with the planning, Volkswagen is aiming for a minimum return on investment (ROI) from each of its car brands in 2006-2008 that would "at least not destroy any value, whereas the 9 percent group ROI target would mean the company is earning real value."
It gave no timetable for hitting the 9 percent target.
Bernhard will slash annual investment at the brand to 2.5 billion euros on average during 2006-2008, a 20 percent decrease from the average annual sum over the past three years.
Finance chief Hans Dieter Poetsch said financial discipline would ensure strong net cash flow in each of the next three years, but added he expected the dollar would continue to weaken in the coming two to three years to $1.30 to the euro or above.
Separately, Volkswagen's supervisory board was set to accept the resignation of embattled personnel chief Peter Hartz after the board's steering committee unanimously agreed he should go, VW board member Christian Wulff told reporters in Wolfsburg.
Wulff, also premier of the carmaker's biggest shareholder, the German state of Lower Saxony, said he had "no doubt" the full board would accept Hartz's departure to take responsibility for a bribery scandal.