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Last Updated: Tuesday, 7 March 2006, 11:08 GMT
Angry workers upset VW's new car plans
By Jorn Madslien
BBC News business reporter at the Geneva motor show

Volkswagen Concept A
VW is preparing to enter a crowded market
Volkswagen has made a splash with its Golf-sized crossover sports utility vehicle (SUV), a concept that could help the car boost both sales and profits for Europe's largest carmaker.

In particular, the Concept A is seen as a crucial addition to the future of the VW brand, the largest subsidiary within the Volkswagen Group, which also owns Seat, Audi and Skoda, as well as Bentley and Lamborghini.

Volkswagen Group's net profits rose 61.5% to 1.12bn euros in 2005, though the VW brand did little to aid this performance.

"Although the Skoda and Bentley product lines developed extremely well, the Volkswagen passenger cars division was just above operating break-even, despite considerable efforts," according to group chief financial officer, Hans Dieter Poetsch.

Fast growing segment

Should the new Concept A model reach production, then it would enter an increasingly crowded pool into which many companies are diving.

Toyota is showing its Urban Cruiser concept at the Geneva show, while Suzuki is making a push with its SX4. French car maker PSA/Peugeot Citroen is preparing to enter with a re-badged Mitsubishi Outlander, Renault with a reworked Nissan, and GM with its Captiva SUV.

This is also an increasingly popular market, not only in North America where consumers are becoming more concerned about the cost of motoring, but also in Europe where drivers have always been loath to buy bulky petrol-guzzlers.

"The crossover sport utility segment is the fastest growing in Europe, especially the compact ones and also the premium SUVs," says CSM Worldwide's European sales forecast manager, Walt Madeira.

With the Concept A, VW Group would be well placed in both markets; Volkswagen with its Touareg SUV, Audi with its similarly-sized Q7 and its more car-like Quattro Allroad.

Major changes ahead

Volkswagen's crossover concept could be the first of a string of new models.

Volkswagen presentation at the Geneva motor show
We are not sure that VW's union...will be prepared to dance to Mr Bernhard's tune
Merrill Lynch automotive analyst Stephen Reitman

VW aims to launch an average of four cars each year until the end of this decade in a model onslaught that is set to coincide with efforts by Wolfgang Bernhard, chairman of the Volkswagen division, to improve productivity of the firm by a whopping 30% over the next three years.

The restructuring might involve as many as 20,000 job losses over, including an early retirement offer to 14,000 workers.

There also may have to be the closure of VW's struggling car-part factories, as well as direct action aimed at slashing the losses suffered by Volkswagen plants in West Germany.

Such action could involve raising working hours from 28.8 hours a week to 42 hours without boosting pay significantly from its current level of about 2,600 euros (1,785; $3,122) per month.

Output is also set to be cut, and VW is expected to consider partnering with rival car makers to minimise the cost of launching new models.

Pischetsrieder's job on the line

VW's restructuring plans have already met with considerable resistance from unionised workers, including those at VW's low-cost division Auto 5000, where workers already put in a 42-hour week without earning more than other workers.

Wolfgang Bernhard and Bernd Pischetsrieder
Mr Bernhard and Mr Pischetsrieder are under fire from workers

"We are not sure that VW's union, whose members' pay has been frozen from September 2004 to January 2007 but now see VW Group report strong cash flow, a 2bn euros bond buyback, the cancellation of treasury shares and a dividend hike, will be prepared to dance to Mr Bernhard's tune," observes Merrill Lynch automotive analyst Stephen Reitman.

Resistance is proving tougher than usual, however, and while Mr Bernard is proving unpopular, much of the anger is being directed at Bernd Pischetsrieder, chairman of the management board at Volkswagen Group.

And in what is a peculiarly German affair, it seems Mr Pischetsrieder may not have his contract renewed at a board meeting on 20 April.

Mr Pischetsrieder remains a popular chief with VW's shareholders, including majority shareholders Porsche and the German state of Lower Saxony, but VW's workers are less impressed with his performance.

As they are represented on Volkswagen's supervisory board, this matters.

Last week, the supervisory board's chairman Ferdinand Piech told The Wall Street Journal that it was possible Mr Pischetsrieder would not survive the vote if all the ten workers' representatives on the board wanted to get rid of him.

Popular cars

But poor industrial relations do not equate to poor customer relations, and nor do they translate into financial losses.

Indeed, VW is rather popular among car buyers at the moment.

Audi Quattro Allroad
Audi sales soared last month

In January and February, the group sold 790,000 cars, up 15% on the same period a year ago, and thus much stronger than last year when sales rose to 5.24 million cars, up 3.2% on 2004, according to Mr Pischetsrieder.

Volkswagen sales rise was aided by strong demand for its small Volkswagen Fox and its medium Volkswagen Passat models, according to the Belgium-based industry group ACEA.

Sister marques Audi, Seat and Skoda also recorded strong sales growth.

In Germany, the VW Group's strongest market, the Volkswagen brand is doing particularly well, with a 27% rise in new registrations in January that boosted its market share to 20.5%, the country's motor car department KBA said last month.

Audi too is doing well. It's sales rose 13% to 62,000 in February, and the growth is set to continue.

"No brand will grow like Audi in the near future," says the marque's chief executive Martin Winterkorn. "We are planning to sell significantly more vehicles in 2006 than in the record year 2005."

Similar success could be achieved with the VW marque, thus bringing it firmly into the black, Mr Pischetsrieder believes, though the question for the future is whether his plan can be sold successfully to workers and shareholders alike.

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