Volkswagen speeds up $1 billion China parts plan http://today.reuters.com/business/newsArticle.aspx?type=ousiv&storyID=2006-03-31T134259Z_01_L31496446_RTRIDST_0_BUSINESSPRO-AUTOS-VOLKSWAGEN
Fri Mar 31, 2006
FRANKFURT (Reuters) - Volkswagen aims to speed up plans to buy $1 billion of parts annually from low-cost suppliers in China, Europe's biggest carmaker said on Friday, exerting pressure on VW's German components plants to cut costs.
"The goal is to sign by the end of 2006 contracts worth $1 billion of exports to the group," a VW spokeswoman said.
Last June, group purchasing chief Francisco Javier Garcia Sanz told reporters VW's (VOWG.DE: Quote, Profile, Research) target was to have $1 billion in annual supplier contracts from China within three years versus around $250 million a year at that time.
VW said it also aims to ensure its Chinese operations buy 80 of their content locally by 2008 and that its two joint ventures there bundle procurement.
Volkswagen AG is currently in the third year of its five-year restructuring program dubbed "ForMotion" designed to slash costs to sharpen its competitiveness.
This includes an ongoing review of its in-house parts business in Germany, much of which it says is uncompetitive. Stepping up buying from low-cost China could put pressure on staff to make cost concessions in negotiations now under way.
VW has said up to 20,000 jobs are at risk at its plants in western Germany. "We would be inclined to assume that current noises are the usual saber rattling," Frankfurt brokerage Steubing said on Friday.
Shares in Volkswagen traded 1 percent lower at 61.80 euros by 1305 GMT, lagging moderate declines in the DJ Stoxx European auto index <.SXAP>. The carmaker's western German staff, the highest paid in the industry, overwhelmingly voted to support IG Metall's candidates for its works council on Thursday ahead of negotiations over the future of Volkswagen's components business.
The high turnout matched with the near-90 percent support for Germany's powerful engineering trade union.
"The strong participation level is a signal that workers are getting mobilized in the face of the imminent job cuts of 'up to' 20,000 out of 102,000 at Volkswagen AG," HVB analyst Albrecht Denninghoff told clients on Friday.
"This might be a signal that negotiations between the board and workers council get more difficult," he said.
-- Additional reporting by Christiaan Hetzner
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