Rigging diesel-powered cars to pass emissions tests that they would otherwise have failed turned out to be a bad business decision for Volkswagen (DE:VOWG_p).
The latest consequence, announced from Volkswagen’s headquarters in Wolfsburg, Germany, is the elimination of 30,000 jobs. Most of the job cuts impact German workers, but employees in Argentina and Brazil may not be far behind. The cuts are expected to save about 3.7 billion euros ($4 billion) starting in 2020.
The emissions-cheating scandal tarnished Volkswagen's reputation and triggered a decline in sales for the first time in 13 years. Between U.S. authorities and close to half a million car owners, the company owes $15 billion in punitive damages.
Longstanding cost issues also plague the company. Costs have consistently risen as productivity has decreased. Volkswagen also has a high employee headcount. Competitors in other countries that sell about the same number of cars have significantly smaller workforces.
In order to eliminate 30,000 jobs, Volkswagen had to strike a deal with employee representatives. It agreed to allow early retirement. From now until 2025, there will be no involuntary layoffs. The bulk of manufacturing and investment in new technology will stay in Germany. Terms also call for the creation of 9,000 jobs for the development of new products.
Volkswagen hopes to shift its focus to electric and battery-powered cars. If all goes as planned, more than 30 models will be offered by 2025. Although the company has lagged behind competitors in concern for the environment, the recent scandal exposed the limitations of diesel. The carmaker will also invest in internet-based services; ride-booking is one burgeoning opportunity.
In addition to its own core brand, Volkswagen makes cars for Porsche, Audi, Lamborghini and several other brands.