VW cuts output target, halts German Passat plant

Volkswagen halted production in Germany of its Passat cars this week as part of a wider move to cut its group output target for the year by about 300,000 vehicles because of the European market slump, company sources said.

The global production target for the VW group, which includes luxury division Audi, has been cut to 9.4 million cars this year, up on last year's output of 8.5 million but short of the goal originally set for this year of about 9.7 million, the sources said on Friday.

German newspaper Handelsblatt also reported the same figure earlier on Friday.

The sources also said that VW had decided to keep the Passat production line shut in Emden, northwestern Germany on Thursday and Friday following Wednesday's national Reunification holiday, due to reduced orders from fleet customers.

"Western European car markets are in free fall, those cutbacks are completely unavoidable," said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne. "There's no carmaker that could claim immunity to the crisis."

VW, on course to overtake U.S. rival General Motors as the world's second-biggest carmaker behind Toyota Motor Corp <7203.T>, has outperformed the European market this year.

The company's eight-month sales in the austerity-strapped region were flat at 2.05 million cars, while southern European peers Peugeot Citroen , Fiat and Renault all suffered double-digit percentage declines in a market that tumbled 7.1 percent to 8.27 million vehicles.

VW also may sell up to 140,000 fewer vehicles this year than originally expected, Handelsblatt quoted works council chief Bernd Osterloh as saying in comments published on Friday and confirmed by the council's spokesman Joerg Koether.

Chief Executive Martin Winterkorn said on the eve of last week's Paris auto show that the business environment had become "significantly more difficult and tougher."

Wolfsburg-based VW's rivals in Europe including GM's Opel division and Ford have already taken steps to rein in costs amid plunging sales.

Opel said in August it will cut the hours of several thousand workers at two of its four German plants while Ford, bracing for more than $1 billion of losses in Europe, said last week that it is offering severance packages to several hundred employees in Germany, the United Kingdom and the rest of Europe.

Audi, which accounted for 44 percent of VW's first-half operating profits, is halting production at its plant in Neckarsulm, Germany, its second biggest plant.

Luxury-market rival Mercedes-Benz has said it will confine production of its top of the range S-Class to single shifts for a period of between six and nine months, although a new version of the S-Class is due to hit showrooms next year.

In contrast production has continued as normal at premium-market leader BMW .

"(Capacity) utilization continues to be on a very high level in all factories," a spokesman said on Friday. "We have no extraordinary steps in the pipeline."

Last month Winterkorn reaffirmed at the Paris car show VW's "ambitious goals" to increase vehicle sales and revenue this year, standing by plans to maintain operating profits at last year's level of 11.3 billion euros ($14.7 billion).

VW is also benefitting from higher than expected orders for the new version of the Golf, its best-selling car, allowing the company to run additional shifts on production of the Golf on four Saturdays through mid-December, works council spokesman Joerg Koether said.

($1=0.7689 euros)

(Additional reporting by Christian Kraemer; Editing by Greg Mahlich)