Volkswagen brand Chairman Wolfgang Bernhard has issued a sober warning: If VW does not drastically change the way it builds cars, the brand will be in desperate shape within five years.
"With this cost structure, VW will progressively lose competitiveness," Bernhard said in a recent interview with journalists in Italy. "In about five years, we won't be able to compete in the market, and we will be marginalized.
"It is a film we've already seen in the U.S. with General Motors and Ford. And, unfortunately, we know how it ends. A volume brand without competitiveness ends with surrender."
In the past year, GM and Ford Motor Co. have announced massive reorganization plans, including the closing of factories and the layoff of thousands of hourly and salaried workers. Bernhard said VW could be following a similar path.
"I don't want to be the man to make a first-class funeral for VW," he said.
Bernhard's comments are his latest signal to Europe's labor unions that difficult decisions lie ahead for Europe's No. 1 automaker. This year, VW said it would cut as many as 20,000 jobs in western Europe. Most will be in Germany, where VW workers earn the highest wages in the industry.
Bernhard said VW's hourly labor costs in assembly plants in Germany total 55 euros ($69 at current rates) an hour, compared with 30 euros ($38) at VW's other western European plants, 7 euros ($9) in China and 5.50 ($7) euros in Slovakia.
Compared with its best competitors, VW workers take twice as many hours to build a car. Component plants producing axles, transmissions and engines are the biggest problem, he said. Bernhard estimated that 10 to 15 percent of VW's parts plants are uncompetitive.
VW makes 40 percent of its components, a higher percentage than other European carmakers. Selling those plants could account for nearly half of VW's announced 20,000 job cuts.
Bernhard said VW is discussing all options with the unions for the future of the parts factories -- "selling them, running them as a joint venture with other suppliers or closing them."
Bernhard's solution: Develop cars that are simpler to build. "We have planned our vehicles to be too complicated and too costly to construct," he said.
The first sign of VW's progress will come with the launch of the next-generation Polo small car, due in 2008.
In a note to investors, auto analysts at Citicorp said: "VW should be the most fertile field for auto restructuring, with capacity use of about 73 percent in Europe and a labor force 15,000 to 20,000 too high being paid 20 percent above engineering norms."
The VW group's first-quarter profit rose to 327 million euros ($412.2 million) -- "well below" its medium-term earnings target, VW said.
Bernhard said more work is needed. "It is difficult to say which brands (in western Europe) will be competitive in 10 years," he said. "If VW has the courage to resolve its own problems, it will still be there."
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