During a gathering of 20,000 Volkswagen Group employees at company headquarters in Wolfsburg, Germany on Wednesday, CEO Martin Winterkorn dropped a bombshell. The boss stated that the automaker isn't operating efficiently enough and admitted the company needs to radically start cutting back to raise its profit margins. To right the ship, Winterkorn has proposed killing off less profitable models and spending less on research and development.

According to Reuters, Winterkorn wants to raise the VW brand's profit margin from about 2.9 percent in 2013 to a target of 6 percent. To make that possible, his plan amounts to increasing cost cutting until Volkswagen reaches about 5 billion euros ($6.7 billion) per year to get things back in order. "Over the short-term, we urgently need more efficiency and higher profit," the CEO said during his speech, according to Reuters.

However, Winterkorn can't make these decisions unilaterally. Volkswagen's works council also has a seat on the supervisory board to represent laborers, and it isn't likely to take the proposed cuts sitting down.

Winterkorn's plan is especially interesting because the Volkswagen Group is going gangbusters worldwide, even if it's not meeting expectations here in North America. In the first quarter, it posted the equivalent of over $3 billion in global profits after taxes, and the group is aiming to meet its 10-million vehicle sales goal in 2014, four years early. Contrast that to the problems of the VW brand that saw its Q1 operating profits fall to around 440 million euro ($592 million), compared to about 590 million euro ($794 million) in the same quarter for the previous year. At the time, the automaker attributed the lower figure to falling sales, like in North and South America, poor exchange rates and higher investments in technology.

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    • 1 Second Ago
      • 10 Months Ago
      "To right the ship, Winterkorn has proposed killing off less profitable models and spending less on research and development." this always goes well.
      • 10 Months Ago
      What more can VW cut? They've already resorted to fairly aggressive measures in the U.S. and we know how that played out.
      • 10 Months Ago
      "Spending less on research and development" Well that doesn't sound very promising.
      • 10 Months Ago
      I think Winterkorn is responding to what he sees on the horizon and certainly with Middle East, South America, Russia experiencing various sorts of issues social, economic and political the decision is an understandable one.
      • 10 Months Ago
      They have already cheapened their cars to a point that no one wants them. It doesn't look good for VW, but then it hasn't for a while.
      • 10 Months Ago
      He might want to consider how much VW Group is spending to maintain so many different brand channels. Surely they're not all worth keeping and scaling them back could save plenty.
      • 10 Months Ago
      Cutting costs, yet last week they supposedly wanted to buy FCA?
        • 10 Months Ago
        It was a smokescreen to provide some measure of political cover once the reality of the situation became know. A little jingoism goes a long way with the public.
      • 10 Months Ago
      how is that possible? their cars are expensive and the MQB is saving them loads of money..
        • 10 Months Ago
        but its cost a boatload more than they expected to implement and they're only halfway through the conversion. Guess this is why they released that ridiculous "buy FCA' rumor a few days ago--yca.
      • 10 Months Ago
      IG Metall, suckit. Along with the UAW in Tennessee.
        • 10 Months Ago
        good. Falling VW sals means GM will be the world reader for a long time. Suck it UAW!
      • 10 Months Ago
      Do it the way the whores at Porsche do…just raise the price to what the market will bear and profits will follow. Achtung…you have to have a car that people desire. Cutting costs before infusing content is a no-brainer but it generally leads to brand destruction.
      • 10 Months Ago
      If they want to cut costs and raise profits, then VW needs to stop buying up everything they see. Concentrate on the brands you already have or sell the non-essential units. Do they really need Ducati? And yes, I said it, they should give up on those Alfa, Suzuki and Proton pipe dreams.
        • 9 Months Ago
        you are delusional. audi bought ducati cause bmw has its own motorcycle brand. now imagine that ex-porsche engineers do their magic on unreliable but gorgeous to look at motorcycle brand. look what they did to Lambo. Yes, Ducati has needed it more than ever. VW already has stakes in Suzuki, and Alfa is going to fail anyway and then be bought for 1p.
      • 10 Months Ago
      They cut back on quality control years ago and now R&D? Maybe someone in India should buy them and beat them back into shape like Jag and LR... Jim
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