VW expects deal with staff on cost cuts in coming weeks

By Andreas Cremer

BERLIN (Reuters) - Volkswagen said it expects to agree a deal with labour leaders in coming weeks on cost cuts and investments that will form part of the German carmaker's efforts to revive its fortunes more than a year after the emissions scandal broke.

Europe's largest carmaker is under pressure to make cuts at high-cost operations in Germany to help to pay for a shift to electric cars and autonomous driving while still dealing with billions of euros in costs for the emissions scandal.

Analysts consider an agreement between management and workers on cost cuts and strategy - dubbed "future pact" - at VW's core autos division, is central to its long-term future.

Some analysts believe radical cuts are needed.

Evercore ISI analyst Arndt Ellinghorst has estimated VW needs to reduce costs, including spending on R&D, by 22 billion euros in coming years.

VW, in a joint handout with the works council distributed among staff on Wednesday, said the pact should be finalised in the coming weeks but gave no details.

"We must significantly improve our profitability to be able to fund the necessary investments in future areas," VW brand chief Herbert Diess said in the handout. Labour boss Bernd Osterloh said workers were willing "to pull the car out of the mud."

Diess, who was instrumental in cutting costs at BMW before joining VW last year, said there was a chance to make factories more efficient while offering staff prospects for stable employment.

But VW's labour leaders have opposed big cuts and said on Wednesday the pact could still fail if VW does not commit itself to basing future projects - such as making electric car batteries - in Germany.

Management is planning steps to raise productivity at German plants by between 5 and 8 percent, a source at VW said on Tuesday. VW has declined to comment.

Osterloh and Diess are due to speak to thousands of workers at a staff meeting in Wolfsburg on Thursday to give an update on the talks which have been held since June.

Germany's Manager Magazin had said on its website earlier on Wednesday that VW had agreed with labour leaders on cutting costs at the VW brand by between 5 and 6 billion euros ($5.5-6.6 billion) by 2025 at the latest.

The magazine said Europe's largest automaker would take advantage of natural attrition to cut between 10,000 and 20,000 staff over the next decade, citing unnamed sources familiar with the talks.

VW expects the VW brand's operating margin to double to 4 percent by 2020 from an expected 2 percent this year, less than an original goal of 6 percent, the magazine also said.

A 4-percent margin target would be far below VW's potential, Evercore ISI analyst Ellinghorst, who has a "buy" recommendation on the stock, said.

VW and the works council declined to comment on the Manager Magazin report.

Both sides are aiming to conclude the pact in time for a supervisory board meeting on Nov. 18 to sign off on spending plans for coming years.

VW's shares were up 0.4 percent at 121.8 euros at 1449 GMT.

($1 = 0.9093 euros)

(Reporting by Andreas Cremer; Additional reporting by Ilona Wissenbach in Frankfurt; Editing by Maria Sheahan and Jane Merriman)

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