Car Confidential: Pischetsrieder to cut VW costs

'VW chairman Bernd Pischetsrieder is not a happy man. VW Group saw its profits cut in half during 2003, and the prognosis for 2004 isn't much better. Many European markets are still performing below par, and the weakness of the US dollar against the Euro means VW is currently losing money on every car it sells there.

As a result, Pischetsrieder has announced a massive cost reduction programme called ForMotion – a play on VW's 4Motion moniker – aimed at slashing expenditure by 4bn Euros (£2.67bn) over the next two years. Every brand will feel the pinch.

Among the future models to have been axed or put on hold are a Passat crossover called Hunter, a lightweight mid-engined VW sports car and a Golf-sized Audi SUV.

Also off the menu are proposals for a small Seat roadster and coupe, plus replacements for the Arosa, which goes later this year, and the Alhambra MPV, which disappears in 2007. The Seat Toledo will now be replaced by a notchback version of the Altea. Skoda will escape swingeing cuts by virtue of its low cost base, but the Superb may not survive in its current form. If replaced – it sells well in central Europe – it may be on a stretched PQ46 Passat platform built for China.

VW has written off 711m Euros (£475m) worth of extraordinary investments to cover losses incurred by Bentley, Bugatti and its own upscale Phaeton. The company is committed to producing the 1,001bhp Bugatti Veyron even though it will lose money – sources admit backing out of the 252mph supercar project at this stage would all but kill the brand – but is now working on a lighter V8-powered 2+2 coupe.

Bentley's Continental saloon is still on track for launch later this year, but there has been no decision on the Arnage, which is due for replacement in 2009. VW has three alternatives: a heavily revised version of the current car; a new car based on the next generation A8; or an all-new modular rear drive platform that could underpin the next generation Phaeton, Continental GT and VW's proposed 5-series fighter, the C1.

Long term, option three seems the most cost effective. But can Pischetsreider afford to take the long term view?'