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UPDATE 2-Volkswagen makes slow progress in cutting costs
March 12, 2015 / 9:47 AM / 3 years ago

UPDATE 2-Volkswagen makes slow progress in cutting costs

* VW has identified half of planned 5 bln eur cost cuts

* VW 2014 brand operating profit down 14 pct

* VW shares down 0.6 percent (Adds CFO, trucks chief comments, detail, updates shares)

By Andreas Cremer

BERLIN, March 12 (Reuters) - Volkswagen is making slow progress in cutting costs at its core passenger car brand, where profit continued to fall last year due to weaker emerging markets and technology costs.

Europe’s largest automaker is aiming for 5 billion euros ($5.3 billion) of savings a year at its namesake VW brand by 2017 to close a profitability gap with rivals such as Toyota.

Group Chief Executive Martin Winterkorn said on Thursday cost cutting, including ceasing unprofitable models and reducing expensive equipment, might boost the brand’s 2015 results by “well over 1 billion” euros.

That’s only about a fifth of the target, and added to some analysts’ doubts about the plan, even though works council chief Bernd Osterloh told Reuters in January that VW should manage savings of “substantially more” than 5 billion.

“Scepticism about such cost-cut plans is justified,” said Bankhaus Metzler analyst Juergen Pieper, who recently lowered his recommendation on VW stock from buy to hold. “I expect the savings to be smaller (than the targeted 1 billion this year); ultimately it’s very difficult to verify the savings.”

VW shares were down 0.6 percent to 240.8 euros by 1330 GMT.

Winterkorn said the VW division, the group’s largest by unit sales and revenue, had identified steps to achieve about half of the 5 billion target, without elaborating.

Some measures won’t bear fruit until 2016 or 2017, such as assembling the new long-wheelbase Tiguan SUV in Mexico which will protect VW from swings in the dollar and terminating models such as the Eos convertible, the company said.

“We are steadily adding (cost-cutting) themes,” finance chief Hans Dieter Poetsch said at the group’s annual press conference. “We’re confident but the whole matter can only succeed with hard work.”

After posting forecast-beating 2014 results last month, driven by demand for upmarket Audis and Porsches, the group gave details on Thursday about individual brands.

Earnings at the VW division, which makes the Golf hatchback and Passat saloon, dropped 14 percent to 2.48 billion euros, after plunging by a fifth in 2013, hit by tumbling demand in Russia and Brazil.

Its operating margin slipped to 2.5 percent, far below a long-term target of at least 6 percent.

Separately, the group’s new trucks chief said it would need to enter the U.S. market to become a global force in that business.

The group also said Winterkorn earned 15.9 million euros last year in salary, bonus and profit incentives, up from 15 million in 2013. That’s more than any other chief executive among Germany’s top 30 companies listed on the DAX index.

$1 = 0.9445 euros Editing by Georgina Prodhan and Mark Potter

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