FRANKFURT -- Volkswagen will form long-term strategic partnerships with its parts suppliers and has agreed cost-cuts on purchases worth hundreds of millions of euros, the company said on Monday.
Separately, its German labor representatives agreed tentatively to a new labor shift model they said could save VW another 50 million euros ($60.3 million) in costs every year.
The move to form strategic partnerships underlines a trend towards creating stronger ties with a smaller, select group of parts suppliers that has proven beneficial to companies such as Toyota Motor Corp. and BMW AG.
"The successful suppliers will become premium partners that we will take into increased consideration in the future during meetings for new model projects," group purchasing boss Francisco Javier Garcia Sanz said in a statement.
In the past, mass carmakers often played suppliers against each other, imposing ultimatums to lower material costs or lose business, and suppliers were forced to undercut each other.
VW said it would take the cost-savings measures immediately rather than wait until a model's life cycle ends.
"The triple-digit-million euros in cost savings that have been identified will be achieved starting next year and will be sustainable," a spokeswoman for Volkswagen said.
Chief Executive Bernd Pischetsrieder had already set a target of achieving 1 billion euros ($1.2 billion) in material cost savings alone in 2006.
"The measures are one element of the target to cut material costs by 1 billion euros next year," the spokeswoman said.
GOOD RELATIONS KEY
Struggling U.S. rival Ford Motor Co. said late last month it would halve the number of suppliers and award key parts-makers larger, long-term contracts to mimic the success Toyota has enjoyed partly due to strong relations with suppliers.
Analysts and industry experts have praised Ford's change in strategy. They expect efficiency and savings to improve while encouraging suppliers to share innovative technology that has often been reserved only for their preferred business partners.
Another company known for close ties with suppliers is BMW, one of the world's most profitable automotive manufacturers.
"Mass carmakers often had shorter-term contracts relatively speaking so that they could more often renegotiate for better prices," said industry analyst Ferdinand Duedenhoeffer of B&D Forecast.
"They would share the risks among two, three or four suppliers but also see through a larger bidding competition amongst suppliers how much they could drive the prices down."
Concentrating on a smaller number of parts makers would mean those suppliers could achieve larger economies of scale and then grant Volkswagen more price savings as a result.
LABOR DEAL IMMINENT
Separately, Volkswagen reached a tentative agreement with its works council over a new labor shift model for Golf and Golf Plus production at its main Wolfsburg plant that could save it millions every year in labor costs.
"Volkswagen is confident it can sign a deal soon," a company spokeswoman said, declining to provide details of cost savings until VW's works council votes on the agreement by November.
A spokeswoman for the works council said later the new shift model would bring savings of 50 million euros per year.
In exchange, the works council spokeswoman said the company would maintain production of its flagship Golf and its Golf Plus derivative in Wolfsburg at 400,000 units in 2006 -- guaranteeing the jobs of 5,300 employees.
Initially, VW planned to cut production there to 300,000 cars and shifting the remaining 100,000 units to lower-wage plants such as Mosel in eastern Germany or Brussels in Belgium.
The new shift model that would take effect on Jan. 2 moves away from rotating three shift operations. Employees now would either remain on the night shift or rotate between morning and late shifts every week. The model would have staff working Monday through Thursday each day for 7.2 hours.