MUNICH, Germany -- Volkswagen group's three-year capital spending plan for its automotive operations will be at its lowest level in more than a decade.
With crucial vehicles such as the Golf and Passat cars already launched, VW says it plans to allocate 22.7 billion euros, or about $26.76 billion at current exchange rates, to its core automotive operations over the next three years. That's about 6 percent of its anticipated revenues.
It is almost 1 percentage point more than VW will spend this year. But VW's three-year plan of 6 percent spending will be its lowest average since 1993-95, according to company information and industry analysts.
During the last 10 years, VW's automotive investments have averaged 8.1 percent of sales.
The industry average is 6.5 percent.
The reduction coincides with a maturing model lineup and other factors.
"VW is coming off a peak in its model cycle, but the company is trying to tighten the purse strings to protect its credit rating, improve its balance sheet and save cash," says Adam Jonas, an analyst at Morgan Stanley in London.
"Volkswagen knows it needs to get rid of a lot of employees, and that could cost 1 billion euros" ($1.18 billion).
VW says its spending targets are designed to help the automaker reach its 2008 earnings goal.
Hans Dieter Poetsch, VW group's management board member in charge of finance, said in a statement that VW remains "committed to our stated target of a pretax profit totaling 5.1 billion euros ($6.01 billion) for 2008."
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