Volkswagen in talks to sell casting plant

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Volkswagen in talks to sell casting plant

Reuters / August 23, 2006 - 11:00 am

FRANKFURT/HANOVER, Germany -- Volkswagen may sell a German casting plant, as part of a wider effort to cut costs, but no decision had been taken yet, the world's fourth-biggest carmaker said today.

"We are holding talks on the sale of the casting plant in Hanover," a Volkswagen spokesman said, confirming a report by Germany's Manager Magazin which said the company wanted to sell the plant that employs 1,250 workers.

Two parties were seriously interested, the German magazine said, citing sources familiar with the situation.

Volkswagen is examining its in-house component production amid an ongoing restructuring program to boost pretax profit by 4 billion euros over four years. In future, it wants to rely more on parts suppliers.

"Casting operations are very labor intensive and in a high- wage country like Germany that can be quite expensive, particularly since employees there likely receive bonuses for the severe working conditions," said Willi Diez, an automotive industry professor at the university of applied sciences in Nuertingen.

"Suppliers operate under other conditions for different wages," he continued, referring to Volkswagen's labor costs, which are the highest in the industry.

The carmaker denied it was in the process of selling its axle production plant in Braunschweig, which Manager Magazin also reported.

But M.M. Warburg analyst Marc-Rene Tonn said: "Axles are certainly something they should take a look at, since reducing the amount of components they make themselves raises their flexibility."

Up to 20,000 jobs are at risk at VW's six plants in western Germany due to the restructuring program, the company has said.

It also wants to introduce longer working hours and talks with labor unions are due to start again in September.

"Much of what Volkswagen can restructure at its components business depends on the outcome of the talks with unions," Tonn added.

Some analysts have called for management to take bolder steps than just the disposal of certain parts operations and to sell or close entire assembly plants -- such as its factory in Brussels -- to reduce significant overcapacities in the group.

"This would be very expensive, with worker payoffs and asset writeoffs, but the question remains more of a both-this-as-well-as-that instead of either/or," Nuertingen's Diez said

SOURCE: Automotive News