Volkswagen needs deep cuts to remain competitive, CEO says ahead of crunch talks

Debate over whether it was fatal or not is now on the table.

Blume says overhead costs remain more than 30% above comparable firms

Four German plants not expected to reach competitive capacity utilisation in the 2030s

Volkswagen supervisory board meets on September 4, sources say

Volkswagen CEO Oliver Blume warned on Friday that the car sector's problems would only intensify in the coming years, arguing deep cost cuts were needed to keep Europe's top automaker afloat as it gears up for weeks of crunch talks over a planned revamp. Blume's comments, made in an internal company memo seen by Reuters, come as Volkswagen is undergoing what is considered to be its largest-ever restructuring, possibly ranging from a fresh 50,000 job cuts to the carve-out of some divisions.

Squeezed by aggressive Chinese competition rushing to Europe, falling profits in China and painful import tariffs in the United States, Volkswagen is struggling with declining profits and costly overcapacity in Europe.

"The situation is more than critical," Blume said in the memo, adding that while current margins of less than 4% were solid in the current environment "it is by no means sufficient to generate enough funds in the long term for new technologies, new products and our sites".

Blume, who will next week tour Volkswagen plants at risk under the current turnaround plan, said the German carmaker's overhead costs remained more than 30% higher than those of comparable firms, adding this had to be tackled to remain competitive.

Volkswagen's supervisory board is scheduled to meet on September 4 to continue its discussion on the turnaround plans, according to people familiar with the matter.

While the group has not officially quantified the size of additional job cuts, sources have told Reuters it could be an additional 50,000, effectively doubling the group's planned layoffs.

"The frequently cited figure of around 50,000 jobs worldwide is not a fixed target," Blume said, adding it was derived from the company's cost objective relative to the competition and served "as an indicator of the scale of action required".

In July, Volkswagen unveiled plans to drastically cut its model lineup and further pare back capacity. The controlling families behind VW earlier this month dialled up the pressure on all stakeholders and demanded dramatic restructuring efforts.

Four Volkswagen plants in Germany -- Emden, Hannover, Zwickau and Neckarsulm -- are not expected to reach competitive capacity utilisation in the 2030s, Blume said, but stressed that there is no decision yet on specific plant closures.

Sites have made progress in some areas, he said, but it is not yet enough, even without considering the pressure from new competitors from China and their plants in Europe.