VW Management Comes Under Stockholder Fire

FRANKFURT, April 21, 2004; Christiaan Hetzner writing for Reuters reported that Volkswagen's managers will face a bruising annual general meeting on Thursday with angry shareholders pressuring the carmaker to deliver some signs of a turnaround.

Investors will demand Chief Executive Bernd Pischetsrieder explain how he wants to get Europe's largest carmaker out of the doldrums after a dismal year 2003 and a first quarter that the CEO has already dismissed as "lousy."

VW's biggest shareholder, the German state of Lower Saxony, is among those who have criticised management for devoting too much time on its troubled luxury car strategy while its bread-and-butter Golf was struggling with sluggish sales.

VW reported a 63 percent plunge in operating profits last year, and a Reuters poll of 22 analysts produced a consensus forecast for first-quarter net income of 106 million euros ($125 million), down from 202 million a year ago. Estimates varied widely from a loss of 30 million euros to a 297 million profit.

VW is due to report the results next week, but could give indications at the meeting on Thursday.

Last year, VW's foundering attempt to move upmarket with luxury cars erased nearly 600 million euros from its bottom line, restructuring at its Brazilian operations cost 133 million euros, while the strong euro cost an astonishing 1.6 billion.

Now, increasing competition threatens VW's dominance in China and U.S. sales are tanking as analysts blame a dearth of incentives needed to help shift ageing Jetta and Passat models which are not expected to get a U.S. relaunch before next year.

GOLF BELOW PAR?

The main worry, however, is the slow start for Volkswagen's new Golf V hatchback. Previous models have been very successful, practically defining the compact segment, and their substantial profits have helped finance VW's costly foray into luxury cars.

Yet critics say the latest generation of the company's flagship model is too expensive compared to rivals such as General Motor's new Opel Astra.

Sales of the latest Golf started to pick up after VW threw in free air-conditioning, but only rose 1.5 percent in the key Western European market during the first-quarter of this year.

In an attempt to boost profitability by scaling back its high production costs, VW's boss has announced 5,000 job cuts at the auto division and aims to save an additional 2.2 billion euros by the end of 2005 as part of his so-called "For Motion" efficiency programme.

Analysts haven't been impressed, however. The added savings "equate to just over two percent of the total cost base over two years and thus hardly qualifies as radical," said Stephen Cheetham of Sanford C. Bernstein & Co.