Volkswagen may set aside up to $4.4 billion in provisions for capacity cuts, Jefferies says

BERLIN (Reuters) – Volkswagen could set aside up to 4 billion euros ($4.4 billion) in provisions for planned capacity cuts as early as the fourth quarter, analysts at brokerage Jefferies said in a note after traveled with company executives to North America.

Volkswagen said earlier this month it was considering closing factories in Germany for the first time in its history as part of a cost-cutting plan as it struggles to compete with Asian rivals.

“The rationale for resizing VW’s namesake (brand) is not new, but the sense of urgency and management’s determination to address excess capacity and spending patterns both are,” Jefferies analysts wrote in the note.

“Three days on the road in North America with management gave us confidence that there is no plan B to rule out capacity cuts,” they said, adding that the decisions could lead to provisions of 3 to 4 billion euros in the fourth trimester.

Jefferies did not specify the purpose of the trip.

Volkswagen declined to comment.

As part of its restructuring efforts, Volkswagen last week ended a long-standing job security scheme for six of its German factories, clashing with powerful unions that have vowed fierce resistance against any cuts.

“Unions should feel the pressure to reach new agreements, while VW will be able to force redundancies. There is a risk of plant disruption, but unions can only strike with pay, not plant closings or layoffs if the latter are not contractually protected. Jefferies wrote.

Jefferies said the charges could be around €2.5bn to €3.0bn and up to €4bn, assuming severance costs of two annual salaries per worker and “including other closing costs”, not specified.

(1 USD = 0.9007 euros)

(Reporting by Victoria Waldersee; Writing by Christoph Steitz; Editing by Friederike Heine and Emelia Sithole-Matarise)