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Volkswagen eyes thousands of job cuts

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By Christiaan Hetzner

FRANKFURT (Reuters) - Volkswagen AG, Europe's largest carmaker, will cut several thousand jobs at its six high-wage German production sites in an effort to regain a competitive footing amid brutal competition worldwide.

"Despite rising sales, the Volkswagen Group still has considerable overcapacity and will therefore be intensifying its efforts to cut back manpower," it said on Monday, toughening its recent rhetoric on the need to slash production costs in Europe.

Chief Executive Bernd Pischetsrieder warned late last month that the future of carmaking in Germany was at risk if companies like VW could not reduce labor costs that analysts estimate are at least 20 percent higher than in the rest of the industry.

VW said it had "several thousand" more staff than it needed in Germany and in particular at its main production plant in Wolfsburg, regardless of whether its planned Marrakesh compact offroader based on the Golf would be built there or not.

The world's fourth-largest carmaker said the measures would be achieved without breaking commitments it made to its workforce in a labor accord late last year, when VW pledged not to lay off its 103,000 staff in western Germany through 2011.

"It is planned to extend eligibility for early retirement to employees born in 1951, with a further extension to cover employees born in 1952 if required. Furthermore individual employees will be offered termination packages," VW said.

The cutbacks apply to employees in all areas, it added, including senior managers. No comment was immediately available from its works council or the IG Metall metalworkers union.

Volkswagen did not say if it may have to build a provision or take a restructuring charge for the planned cuts since it was unclear at present how many will take advantage of the offer.

German investment bank Dresdner Kleinwort Wasserstein estimated the cuts could lead to some 560 million euros in mid-term savings.

Following the news, shares in Volkswagen rose 2.1 percent to 43.30 euros by 1130 GMT, making it the top gainer in the German DAX blue chip index.

It has risen 30 percent this year on turnaround hopes, outperforming the DJ Stoxx European car sector index by nearly 10 percent.

The share gained steam after impressive sales statistics for its main earnings contributor, Audi, as well as a surprising 11 percent rise in new car registrations last month in VW's key German market, driven by a 14 percent gain for German brands.


The announcement comes amid ongoing negotiations with employee representatives over whether to build VW's compact sports utility vehicle (SUV) in Wolfsburg or possibly in Portugal, where it builds the VW Sharan and Seat Alhambra vans.

It followed a weekend report in German magazine Der Spiegel that VW sought to cut over 10,000 jobs -- roughly 10 percent of staff -- at its six main western German plants.

"We have the impression that pressure is turning up before the decision on the location for the Marrakesh," HVB analyst Albrecht Denninghoff told clients.

Robert Heberger of Munich-based private bank Merck Finck believes the company is not going far enough to address its bloated cost base, however.

"We argue that job cuts need to be followed by German plant closures in order to reduce production costs, as VW's plants currently only run at about 75 to 80 percent of capacity...however, such a move does not seem to be on the agenda," he wrote to clients.

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