VW pledges productivity gains at troubled core brand | Reuters

WOLFSBURG, Germany Volkswagen (VOWG_p.DE) is targeting fixed productivity gains at its troubled core division through 2020 by pushing cost savings, stemming overseas losses and launching more higher-margin cars as the carmaker battles to overcome its emissions scandal.

Positive development at Volkswagen’s namesake VW brand may continue throughout 2017, the carmaker said on Friday, building on a strong rebound in the first quarter when cost cuts helped operating profit to surge to 869 million euros ($953 million)from 73 million a year earlier even as auto sales slipped.

“The substantial restructuring programs are bearing early fruits,” VW brand chief executive Herbert Diess said at a press conference. “What’s now crucially important is for us to continue along this path and work through our tasks ahead.”

Investors have said a turnaround at the VW brand, which has long been saddled with high fixed and research and development costs, is key to turning the German giant into a more attractive business.

The VW brand is targeting an operating margin at the upper end of a 2.5 to 3.5 percent range this year, after 1.8 percent in 2016, with revenue expected to exceed last year’s adjusted result of 74 billion euros by around 10 percent, it said.

Europe’s biggest carmaker has pledged to further stem losses in North America, South America and Russia by rolling out more sport-utility vehicles (SUVs) and pushing cost savings with a goal to reach break-even in these regions by 2020, Diess said.

Other means for VW to improve productivity through 2020 include a hard-fought deal with unions to cut red tape and jobs, especially in high-cost Germany, and steps to increase output of vehicles based on the cost-saving MQB modular platform.

VW said on Friday it aims to raise productivity at its passenger-cars business by 7.5 percent in each of this year and next, and a further 5 percent in 2019 and 2020.

Wolfsburg-based VW stood by its goals to increase the brand’s operating margin to at least 4 percent by 2020 and to 6 percent by 2025, citing risks to the business such as volatile markets.

“We will critically review these financial targets and increase the guidance if necessary, as soon as we believe that what has been achieved is lastingly secure,” VW brand finance chief Arno Antlitz said.

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(Reporting by Andreas Cremer; Editing by Georgina Prodhan)