BERLIN — Volkswagen AG’s namesake brand said Wednesday it would cut up to 7,000 administrative jobs over the next five years as the company focuses its spending on technology.
Volkswagen is spending billions to develop and produce electric vehicles outfitted with state-of-the-art communications and infotainment systems. To unlock capital for these investments, it is also modernizing its processes from the office tower to the factory floor.
The moves are part of an industrywide shift in which vehicles and manufacturing processes that have been largely unchanged for a century are being redesigned as computing power overtakes horsepower in a new generation of electric and increasingly self-driving vehicles.
The changes have brought the auto industry in to direct competition with Silicon Valley tech giants such as Alphabet Inc.’s Google, electric car pioneer Tesla Inc., and ride-hailing behemoth Uber Technologies Inc. Investors sizing up the competition have depressed the share prices of conventional auto makers.
Ralf Brandstätter, the VW brand’s chief operating officer, said on Wednesday the brand would invest EUR4.6 billion ($5.2 billion) in new information technology equipment and systems, largely to digitize routine manual tasks in the company’s administrative offices.
The job cuts come on top of a 2016 plan, dubbed the “Pact for the Future”, in which VW is cutting 23,000 jobs, about 19% of the VW brand’s workforce in Germany, through natural fluctuation and early retirement.
Falling profitability has been putting pressure on VW’s core brand, which generates nearly half of the Volkswagen group’s revenue but less than a third of its profits. The VW marque said this week that operating return on sales fell last year to 3.8% from 4.2% in 2017, below its target of at least 4%, partly due to heavy investment in new technology. The company is now predicting it will achieve a 6% margin in 2020.
“We must do considerably more in order to deal with the challenges that are coming after 2020,” Mr. Brandstätter said in a statement. “We will increase the pace of our transformation considerably in order to make Volkswagen fit for the electric and digital age.”
The new job cuts, about 6% of the VW brand’s 119,394 employees in Germany, or 1% of Volkswagen group’s global workforce of 664,500 employees, will be offset by 2,000 new hires of software developers and engineers specialized in developing electric vehicles. The VW brand is ramping up its factories to produce 10 million electric vehicles over the next decade.
The announcement, flagged by the company’s labor representatives over the past few days, comes as VW CEO Herbert Diess is pressing the company’s brands to cut costs to boost profits and increase the company’s market value.