Volkswagen To Restructure Brazil Operations Amid Plunging Sales

SAO PAULO July 20, 2003; Dow Jones reported that in the midst of a deepening crisis in Brazil's auto sector, German carmaker Volkswagen AG said Sunday it will embark on a restructuring of its activities here.

Volkswagen will unveil more details of the restructuring program, which it said will affect some 4,000 of its 24,800 employees in Brazil, Monday at 1400 GMT.

The company said it hopes to continue to employ some of those 4,000 "surplus" workers in a new program that will be announced simultaneously Monday. The program, to be called Autovisao Brasil, will be similar to the Autovision program designed to stimulate economic growth and employment around VW plants in Germany, initiated by former Chief Executive Ferdinand Piech in the late 1990s.

Volkswagen's decision to restructure its activities here comes after talks with top government officials failed to produce a solution for the crisis- stricken auto sector.

Domestic car sales plunged more than 8% on the year between January and June, and sky-high interest rates are continuing to slow economic activity. Volkswagen, once the top seller of cars in Brazil, has fallen into third place behind General Motors Corp. and Fiat SpA .

Worried about growing joblessness, top government officials like Brazil's President Luiz Inacio Lula da Silva, Finance Minister Antonio Palocci, and Development Minister Fernando Furlan have met repeatedly with automakers in recent weeks. Talks appeared to reach an impasse late Friday, though. After leaving a meeting Friday evening, Development Minister Furlan told local press that efforts to craft an emergency plan for the sector had been paralyzed.

Nonetheless, the government may be pitching in to help Volkswagen save jobs. In a Sunday press statement, Volkswagen said its Autovision program would have support from both private and public entities. The company already uses a shortened work week and flexible hours to avoid laying off unionized workers.

Like other manufacturers in Brazil's $20-billion-a-year auto industry, Volkswagen invested billions to expand output capacity in the late 1990s only to see car sales falter due to hard economic times.