published Tuesday, July 15th, 2014

VW eyes cost cuts to boost profits

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Just a day after Volkswagen unfurled a $600 million investment to expand its Chattanooga plant, there’s a report the company is embarking on a $6.8 billion cost-cutting program at its namesake VW brand that could include scrapping unprofitable models and restructuring its German plants.

Chief Executive Martin Winterkorn told the company’s top executives on Monday it’s going to take “clear, effective and sometimes painful” action to improve profitability, according to The Wall Street Journal.

The assessment of the VW brand from Winterkorn comes as Europe’s other mass-market auto makers have long struggled to cover their costs in Europe which is only slowly pulling out of a six-year slump in demand.

At VW, Mr. Winterkorn said management has to act urgently to raise the unit’s operating profit margin to at least 6 percent by 2018 from about 2.9 percent last year. Volkswagen has set a target of 8 percent operating profit margin for the entire group.

Also Monday, Winterkorn unveiled plans to build a new sport utility vehicle in Chattanooga and hire 2,000 people as the company tries to jumpstart falling sales in the U.S.

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