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Volkswagen AG will cut as many as 30,000 jobs worldwide in a bid to save $3.9 billion in expenditures as the company makes efforts to get back on track from the emissions-cheating scandal that destroyed its image, resulted in huge losses and a change in leadership. Reducing headcount by almost five per cent following months of intense talks, labor and management agreed on a package to balance cost-cutting with investment as the auto industry shifts away from traditional combustion engines and adapts to car-sharing services and self-driving technologies.

The Board of Management and General Works Council of Volkswagen have signed a pact for the future in Wolfsburg. This pact is designed to initiate the return of the Volkswagen brand to a path of profitable growth.

It will lay the foundation for the transformation of Volkswagen from a pure automaker into a successful mobility service provider in the age of digitalization and increasing e-mobility. The main focus is on reorientation across the entire value stream. By 2020, the Volkswagen brand intends to be completely repositioned. Compulsory redundancies are to be excluded and the workforce is to be reduced in a socially compatible way.

The job cuts will come through early retirement and not replacing workers that leave. The savings comprise 3 billion euros at its German factories and another 700 million euros abroad. Argentina and Brazil will be hit hardest by the staff reduction outside Germany.

Weighed down by unwieldy labor contracts, a bloated lineup of vehicles and a convoluted structure, the VW brand has struggled with weak profitability. In the first nine months, the unit’s operating profit margin narrowed to 1.6 percent from 2.8 percent a year earlier. The goal of the labor agreement is to reach a 4 percent profit margin by 2020.

The pact for the future which has now been agreed will be a prerequisite for the successful turnaround of the Volkswagen brand and a milestone in achieving and safeguarding a secure future in the long term.

Due to savings and efficiency improvements in all areas and at all locations in Germany, the company expects a positive annual impact on earnings from 2020 onwards. The regions outside Germany are also expected to achieve sustainable improvements in earnings.