Volkswagen to lop 5,000 after poor first quarter

FRANKFURT, Germany -- German automaker Volkswagen warned Tuesday that sluggish auto markets would lead to "miserable" earnings in the current quarter and announced a cost-cutting program to eliminate 5,000 jobs.

The negative outlook upset investors, who sent the company's shares down 3.07 percent to close at 38.20 euros ($47.41) in Frankfurt.

Volkswagen's earnings have been battered by intense price competition and a weaker dollar in the key North American market, as well as soft consumer demand in its home market, Germany, where sales fell for the fourth straight year last year. The company's recent European launch of its new version of its Golf hatchback sputtered, prompting Volkswagen to offer free air conditioning to attract customers.

At the company's annual news conference at its Wolfsburg headquarters, chief executive Bernd Pischetsrieder said, "the first quarter will be miserable in comparison to last year's" and outlined plans to squeeze an additional 2 billion euros ($2.47 billion) in costs out of the company by 2005.

The company will carry out the job cuts by not replacing workers who quit or retire, he said, and will seek to accelerate efforts to share parts among different models and turn its loss-making commercial vehicles division around. The program, dubbed "ForMotion," intensified a current efficiency effort, the company said.

About 2,000 to 2,500 of the job losses would come in Germany, he said. Volkswagen has some 335,000 workers worldwide.

Pischetsrieder warned that the new year had not gotten off to a good start, with a 6 percent drop in unit sales from the same period a year ago. "The markets were very weak at the beginning of the year, particularly in January," he said.

One of the company's chief troubles has been the stronger euro, which trims profits from the United States, and also has made Europe a more attractive target for foreign competition. The company said it would move some production out of the euro zone to avoid the currency crunch, planning to build the successor to its Lupo compact in Brazil and increasing production at its Puebla, Mexico, plant.

Last year, Volkswagen's net profit fell to 1.1 billion euros ($1.4 billion) from 2.6 billion euros in 2002, with sales rising just 0.2 percent to 87.2 billion euros ($108 billion). The company said that without the sharp rise in the euro, sales would have been 3.5 billion euros ($4.3 billion) higher.

The mainstay Volkswagen brand saw operating earnings plunge to 649 million euros ($804 million) from 2.46 billion euros in 2002, the company said, and the commercial vehicles division lost 218 million euros ($270 million) compared to a profit of 721 million euros a year earlier.

Operating earnings exclude financial items such as interest and taxes, and one-time items such as 711 million euros ($868 million) in charges from adjustments related to investments in new models and restructuring at its operations in Brazil.

The upscale Audi brand made 1.12 billion euros ($1.38 billion), down from 1.36 billion euros the year before.

The company didn't give figures for the fourth quarter of last year.

Volkswagen's other brands include SEAT, Bugatti, Lamborghini, Skoda and Bentley.

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