Cost-cutting deal with unions key to VW's recovery
- Consumer staples stocks help Wall St. pare some losses
- BAT Reaches Deal to Acquire Reynolds American (RAI) for $49 Billion
- Verizon Communications (VZ) May Acquire Big Cable Company - NYP (CHTR) (CMCSA)
- Citron Research Negative on Lannett (LCI); Sees Shares at 'Zero' Over Long Term
- Morgan Stanley (MS) Tops Q4 EPS by 17c
The logo of a Volkswagen Beetle car is seen at the "Sunshinetour 2016" in Travemuende at the Baltic Sea, August 20, 2016. REUTERS/Fabian Bimmer/File Photo
Get instant alerts when news breaks on your stocks. Claim your 2-week free trial to StreetInsider Premium here.
By Andreas Cremer
BERLIN (Reuters) - Volkswagen's
A year after it admitted using illegal software to rig diesel emissions tests, Volkswagen (VW) has still to publish the results of an investigation into who was responsible.
But it has reached a $15 billion settlement with U.S. authorities and worked out a way to refit up to 11 million affected vehicles worldwide, helping its stock to recover almost half of the losses suffered immediately after the scandal broke.
Analysts and investors say key to a further recovery will be the company's ability to tackle a problem that pre-dates the scandal, but which has become more urgent because of it: the high cost base of its German factories.
At a meeting with workers at its Wolfsburg headquarters on Wednesday, executives said they were hopeful of reaching a deal with unions over jobs and investments in the coming weeks.
As an example of the progress being made, one participant said bosses had offered to assign production of two electric cars to German factories currently making combustion engines and related parts, which might suffer from a push for greener cars.
In return, unions voiced openness to greater outsourcing of parts production, a second participant said.
"The latest comments are giving me hope that both sides have got the message," said a fund manager who holds a small stake in VW and declined to be identified. "VW could reap significant earnings potential from a deal but a lot is at stake for both sides and there is always room for disappointment."
High costs have crippled the competitiveness of the mass-market VW brand, the company's largest by sales. The brand's operating margin was just 2.9 percent in the most recent quarter, versus 9.7 percent at Japanese rival Toyota <7203.T>.
Fixing that could yield big rewards for investors.
"VW is the single biggest turnaround opportunity among global carmakers," said Evercore ISI analyst Arndt Ellinghorst, who has a "buy" rating on VW shares and a target price of 160 euros - close to their pre-scandal level.
VW workers are in a powerful position. Their representatives occupy nine of the 20 seats on the company's supervisory board. Another two seats are held by the state of Lower Saxony, home to the company's huge Wolfsburg factory and historically keen to protect investment and jobs.
But the emissions scandal has created an impetus for change.
VW has already set aside about $20 billion to cover the cost of the scandal and some analysts think lawsuits and fines could lift the final bill to twice that level, making cuts inevitable.
Bracing for a lasting hit to the diesel market, VW has also announced a plan to invest billions in electric vehicles, services such as ride-hailing and automated driving, and said it would need big savings to help pay for that too.
Bankhaus Metzler analyst Juergen Pieper said VW should be bold, suggesting 5,000 job cuts through voluntary redundancies and early retirement and a sale of costly components plants. Anticipating change, he has a "buy" rating on VW shares and a target price of 180 euros.
But negotiations won't be easy. VW has already promised that it won't close any plants, and two participants at Wednesday's gathering said they would resist any attempts by managers to force through blanket cuts rather than a smooth transition.
(Editing by Mark Potter)
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Morgan Stanley (MS) Tops Q4 EPS by 17c
- Aqua America (WTR) Offers FY17 Guidance
- Corporate Office Properties Trust (OFC) Offers FY17 Guidance
Create E-mail Alert Related CategoriesReuters
Related EntitiesLayoffs, Earnings
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!