March 12, 2015 / 9:17 AM / 3 years ago

VW makes slow progress on 5 billion euro cost-cut goal

BERLIN (Reuters) - Volkswagen (VOWG_p.DE) is making slow progress on meeting cost-savings targets at its troubled core autos division where profit keeps plunging on weakening emerging-market demand and technology costs.

File photo of man unveiling a Volkswagen car during the International Sao Paulo Motor Show media day in Sao Paulo October 28, 2014. REUTERS/Paulo Whitaker

Europe’s largest carmaker has a goal to increase cost reductions at the VW namesake brand to 5 billion euros ($5.31 billion) per year from 2017 to plug a profit gap with rivals such as Toyota (7203.T).

Chief Executive Martin Winterkorn said on Thursday cost-cutting steps including ceasing unprofitable models and reducing expensive equipment may improve the brand’s 2015 results by “well over 1 billion” euros, about a fifth of its target.

VW shares fell 1.5 percent to 238.60 euros by 0942 GMT, helping pull the European cars index .SXAP down 0.7 percent.

Wolfsburg-based VW has identified efficiency-boosting measures worth about half the size of the 5 billion euro target, the CEO said, without being more specific.

But eight months after VW’s top management issued the cost-cut plans as a wake-up call to managers, brands remain overly concerned with their own interests rather than cost-cutting, works council chief Bernd Osterloh said in January.

Osterloh, who sits on VW’s supervisory board, said VW should be able to lower costs at the namesake brand by “substantially more” than 5 billion euros.

Earnings at VW’s largest division by unit sales and revenue declined 14 percent last year to 2.48 billion euros after plunging by a fifth in 2013, with the brand’s operating margin slipping to 2.5 percent.

VW is targeting a margin of at least 6 percent at the division which makes the top-selling Golf hatchback and Passat saloon.

“Given the subdued growth prospects, there is no guarantee that 2015 will be a successful year,” finance chief Hans Dieter Poetsch said.

($1 = 0.9445 euros)

Reporting by Andreas Cremer; Editing by Georgina Prodhan

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