Volkswagen, Europe’s largest automaker announced Friday that job cuts would be necessary in order to reduce costs as it seeks to overhaul its plants in Germany and offset the tens of billions of Euros in fines that it must pay after being caught cheating on emissions tests.

Roughly 23,000 jobs will be eliminated in VW’s domestic market following an agreement reached by the manufacturer and its powerful unions, whereby reductions will be achieved through voluntary rather than forced redundancies.  Nonetheless, this compromise means that VW will still be lagging rival European carmakers such as Peugeot Citroen and Renault in terms of profitability, which are aiming for an operating margin of 6% in 2021.

It is estimated that the measures to be implemented in its turnaround plan will boost VW’s profits by 3.7 billion Euros in 2021, increase its productivity by 25% and raise the brand’s operating margin to 4% by 2020 from an expected 2% this year, according to a company statement.

VW will create 9,000 new jobs in Germany as a result of its restructuring, which will include investing circa 3.5 billion Euros in areas such as electric cars, battery systems and components.

The German car manufacturer currently has over 610,000 employees worldwide.

Sources: CNN, Reuters