VW to cut capex as emissions scandal weakens unions

Thu Nov 19, 2015 11:40am EST
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By Andreas Cremer

BERLIN (Reuters) - Volkswagen (VOWG_p.DE: Quote) is set to announce its first cut in capital spending since the 2009 financial crisis, a sign of how the German carmaker's emissions-cheating scandal is weakening the position of its labor unions.

The supervisory board of Europe's largest car manufacturer will approve the cuts on Friday, sources familiar with the matter told Reuters, as the company prepares for the multi-billion euro bill to clean up its biggest ever business crisis.

Analysts on average expect Volkswagen (VW) to cut annual spending on factories, models and equipment by 10 percent from the 17.1 billion euros ($18.4 billion) announced last year. That figure was almost double the 8.6 billion average for 2010-12.

Labor unions have long wielded a greater influence at VW than at other German companies, dating back to the 1930s when the Nazi regime used expropriated union funds to build the massive plant at its home town of Wolfsburg.

But the company's admission in September that it cheated U.S. diesel emissions tests has triggered a crisis which is allowing the ruling Porsche-Piech clan to tighten its grip.

With a new chairman and CEO in place who are loyal to the family, some analysts think a power shift is underway that could weaken the position of unions and their local government allies who have often put investment and jobs ahead of profits.

"The way VW functioned in the past twenty years does no longer work," said Arndt Ellinghorst of banking advisory firm Evercore ISI, who has a 'buy' rating on VW shares on expectation the crisis could become a turning point for productivity.

"VW has its back to the wall and it will be management calling the shots ... not the works council," he added.   Continued...

A logo of VW is pictured at a Volkswagen dealership in Camas, near Seville, southern Spain November 5, 2015. REUTERS/Marcelo del Pozo