VW's Pedal-to-the-Metal Profits

Posted by: Gail Edmondson on October 26, 2007

Nine months after a management shake-up at Volkswagen, sales and profit are on a major rebound. And CEO Martin Winterkorn has hardly rolled up his sleeves yet.

VW’s group sales were up 8.2% for the first nine months of 2007, helping Europe’s largest automaker gain market share almost everywhere except in the US. Net profit more than doubled to 2.9 billion euros ($4.1 billion). And CFO Hans-Dieter Poetsch vows full-year operating profit before tax will nearly triple to at least 5.1 billion euros ($7.3 billion), hitting the target set for 2008 a year early. “We are working our way up to improved efficiency and productivity,” says Poetsche — but the good news is that greater efficiency improvements are yet to come.

So far, its Audi and Skoda that are are fueling the biggest gains. The eye-popping numbers from VW’s 9-month results are these: Skoda throttles up its operating margin to 9.1%. That’s nearing Toyota-beating levels — and puts Skoda in the global top tier auto companies by profit. Audi is not far behind, with a solid 7% operating profit for the first nine months — better than BMW. Even the profit-challenged VW brand is starting to get some traction, rebounding to a 2.5% operating margin for the first nine months, after 1.2% last year.

So here’s the 64-million-dollar question: Can the team that brought you Audi and Skoda rev margins at VW to equal those at Toyota (while matching its quality). That’s the game plan. There are plenty of innings ahead. But ex-Audi boss Winterkorn is off to an tire-screeching start.