Volkswagen to cut 20,000 workers

Volkswagen is the latest global car firm to announce restructuring plans

German carmaker Volkswagen is to cut up to 20,000 jobs as part of restructuring plans that are set to run until 2009.

The company is expected to make the cuts at its core Volkswagen business. Its shares jumped 8% to 54.79 euros.

Carmakers are facing difficult times as competition increases, raw material costs rise and consumers prove tough to lure into buying new models.

Ford will cut 30,000 jobs, the boss of General Motors has slashed his own pay and Renault has unvield a new strategy.

"In the next three years up to 20,000 direct and indirect employees within the Volkswagen Passenger Car brand could be affected by this restructuring programme," Volkswagen said.

No quitting

Last year the company warned that it would have to lose workers as it looked to improve efficiency and cut costs.

It has since been working with unions to reach agreement over how many jobs should be lost and where within the company the changes should take place.

In September, Volkswagen agreed to build a new sports utility vehicle in Germany after unions agreed to wage concessions.

We have a collective agreement and it is not our intention to quit that agreement Volkswagen chief executive Bernd Pischetsrieder Check Volkswagen's shares

The company, which had threatened to switch production to Portugal, said that during the latest round of restructuring it would consider adjusting production capacity at its factories.

Chief executive Bernd Pischetsrieder was keen to ease concerns by reassuring unions that Volkswagen would not renege on previous agreements.

"We have a collective agreement and it is not our intention to quit that agreement," Mr Pischetsrieder said.

"The point is not to cut 20,000 jobs," he said, underlining that the company wanted to use early retirement and voluntary redundancy packages as much as possible.

Changed tone

VW, Europe's biggest car firm, also reported a preliminary net profit of 1.1bn euros (£752m) for 2005, topping analyst estimates.

Sales totalled 95.3bn euros in 2005.

It also said it was optimistic about its outlook for 2006, forecasting an increase in sales and operating profit.

As a result, the company proposed raising its dividend to 1.15 euros per share, from 1.05 euros the previous year.

Volkswagen also said it planned to buy back as many as 2bn euros of bonds and cancel almost 42 million treasury shares.

"Overall the tone is more optimistic now than after the third quarter," said Stephan Droxner, an analyst at Landesbank Baden-Wuerttemberg.

"The cancellation of treasury shares and the bond buyback indicate that their financial position has improved."