Volkswagen's Potential €4 Billion Provision Amid Capacity Cuts

Volkswagen may allocate up to 4 billion euros for planned capacity reductions as early as the fourth quarter. Analysts at Jefferies report, after a trip with company executives in North America, that VW plans to shut German plants to manage costs and compete better with Asian rivals. Unions have pledged resistance against job cuts.

Volkswagen may earmark up to 4 billion euros ($4.4 billion) in provisions for planned capacity cuts as soon as the fourth quarter, according to analysts at brokerage Jefferies. This comes after Jefferies' analysts accompanied company executives on a trip to North America.

Volkswagen had previously announced it was considering shutting down plants in Germany for the first time, as part of a broader cost-cutting strategy to better compete with Asian manufacturers. "The rationale to resize VW's namesake brand isn't new, but the management's urgency and determination to handle excess capacity and spending patterns certainly are," Jefferies analysts noted.

After a three-day tour with VW's management team in North America, Jefferies analysts expressed confidence that there would be no alternative to the capacity reduction plan. They estimated provisions between 3 and 4 billion euros might be necessary in the fourth quarter. However, Volkswagen did not comment on the report. As part of its restructuring, VW recently ended a long-time job security agreement at six German plants, sparking resistance from powerful unions.

(With inputs from agencies.)