VW shares surge to top of DAX after agreement on austerity plan

Volkswagen shares surged nearly 10% to the top of Germany’s DAX after the company reached a surprise agreement on a cost-cutting package. Shares in Porsche SE, Volkswagen’s major shareholder, temporarily gained more than 6% on the MDAX, while BMW and Mercedes-Benz also traded clearly higher.

The supervisory board unanimously approved management’s savings plan after weeks of uncertainty and disputes. IG Metall and Volkswagen’s works council said the agreement had prevented an escalation. The measures include cutting another 50,000 jobs over the coming years, while four plants remain at risk.

The rally lifted Volkswagen’s preferred shares to their highest level since mid-June. After recovering more than 15% from the previous day’s low to reach 83.76 euros, the initial momentum weakened. Even so, the stock’s decline since the start of the year narrowed to just over 20%. In early July, it had fallen to about 69 euros, its lowest level since 2010.

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Decidedly positive

UBS analyst Patrick Hummel described the agreement as “decidedly positive,” saying management had largely achieved its objectives and moved faster than expected. He said the measures would help protect profitability as Chinese manufacturers put increasing pressure on the European market. RBC analyst Tom Narayan said Volkswagen must now deliver on many points after the encouraging signal and positive surprise.

Deutsche Bank Research analyst Tim Rokossa called the agreement a “fundamental breakthrough” and said it produced a much better result than feared. Jefferies analyst Philippe Houchois, however, questioned whether Volkswagen’s drama had truly ended or merely paused. A management conference call was expected to help strengthen confidence in implementing a plan aimed at averting what the company considers existential threats.

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Fundamental breakthrough