Volkswagen says cost cuts are urgently needed as its earnings decline sharply

BERLIN -- Volkswagen said significant cost cuts are urgently needed as it reported a steep decline in third-quarter earnings on Wednesday and faced employee representatives angry at the possibility of the automaker's first plant closures in Germany.

The company reported net profit of 1.58 billion euros ($1.7 billion) for the July-September period, a 64% decline from the 4.35 billion euros it earned a year earlier. Revenue was only marginally lower, slipping 0.5% to 78.49 billion euros.

The figures came two days after the head of Volkswagen's works council said management had informed employee representatives that it wants to close at least three plants in Germany. The company hasn't publicly detailed its plans.

Volkswagen said in early September that auto industry headwinds mean it can’t rule out plant closures in its home country, and must drop a job protection pledge in force since 1994 that would have barred layoffs through 2029.

It cited factors including new competitors entering European markets and economically stagnant Germany’s deteriorating position as a manufacturing location. European automakers are facing increased competition from inexpensive Chinese electric cars.

The latest results “demonstrate the urgent need for action in a volatile environment characterized by intense competition,” chief financial officer Arno Antlitz said. “This is why we are facing important and painful decisions that we need to make together and to bear together.”

“We've not forgotten how to build great cars, but the costs — specifically in our German operations and factories — are far from being competitive,” Antlitz said. “This is why things cannot continue as they are now.”

Citing the confidentiality of talks with employee and union representatives, he said he wouldn't comment specifically on plans or “speculations.”

A second round of those talks was held Wednesday at Volkswagen's Wolfsburg headquarters.

Thorsten Gröger, the regional leader of the IG Metall industrial union, said ahead of the meeting that the company must “at least declare its readiness to enter a negotiating process with us that has the aim of developing alternatives to plant closures and layoffs.”

Otherwise, he noted that a no-strike obligation under the last wage deal with Volkswagen expires Dec. 1.

After the talks, Gröger said the negotiations at least didn't immediately fail, but that demands such as a 10% salary cut were unacceptable and there has been no word yet on what contribution senior managers and shareholders would make to achieving savings.

The head of the employee council, Daniela Cavallo, said that “we are not prepared to talk about labor cost targets in isolation; we want to work out a master plan, a future plan for the company together in which plant closures and layoffs are ruled out.”

Volkswagen has some 120,000 employees in Germany, where it has 10 plants — six of them in the northern state of Lower Saxony, including Wolfsburg.