Bloomberg News

VW Seeks to Offset Europe Turmoil by Rolling Out 60 Models (2)

April 25, 2013

Volkswagen AG Chief Executive Officer Martin Winterkorn

Volkswagen AG Chief Executive Officer Martin Winterkorn said, “The Volkswagen group’s unparalleled know-how and strength in the premium segment is - quite literally - paying off.” Photographer: Chris Ratcliffe/Bloomberg

Volkswagen AG (VOW), Europe’s biggest automaker, aims to offset plunging European demand this year by rolling out 60 new and updated models, including luxury cruisers like the Bentley Flying Spur.

“The European debt crisis remains a source of far-reaching turmoil,” Chief Executive Officer Martin Winterkorn said today at the company’s shareholders meeting in Hanover, Germany. “Regardless of whether we are in an upturn or a downturn, our goal is to ensure the Volkswagen group reaches the top of the automotive industry.”

VW is targeting higher auto sales and revenue this year as the revamped Golf, an updated Skoda Octavia and a new Audi A3 sedan help make up for a slowdown in Europe, where demand is heading to a 20-year low. Maintaining growth momentum is key for the company, which aims to overtake General Motors Co. (GM:US) and Toyota Motor Corp. (7203) by 2018 to become the world’s largest automaker.

“Volkswagen will continue to do better than the market,” said Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt. “March was relatively weak, but with rising Golf sales the group should perform better.”

VW gained as much as 3.15 euros, or 2.1 percent, to 153.85 euros and was up 0.8 percent as of 1:56 p.m. in Frankfurt trading. The stock has declined 11 percent this year, valuing the automaker at 69 billion euros ($90 billion).

New Dealers

The manufacturer’s growth all but stalled last month as sales edged up 0.2 percent to 864,400 cars, restraining the first-quarter advance to 5.1 percent as sales in in its home German market tumbled 17 percent.

To further dilute its exposure to Europe’s car market, the company will open 1,500 sales outlets in growth regions in the medium term, adding to its network of 20,000 dealers around the world, Winterkorn said.

Shareholders today are voting on approving a dividend of 3.50 euros per share for common stock and 3.56 euros for preferred shares. Wolfgang Porsche, the cousin of Chairman Ferdinand Piech, is also being proposed for a new term to the carmaker’s supervisory board.

Volkswagen is pinning its hopes for keeping up sales volumes on new models, such as the seventh generation of its best-selling Golf compact, introduced at the end of last year. The Audi premium brand, VW’s largest earnings contributor, has been rolling out the revamped A3 hatchback and will add a sedan version of the model later this year to lure American and Chinese buyers seeking a small car with a separate trunk.

Luxury Expansion

Luxury brands account for more than half of VW’s earnings and the presence in this market segment will expand.

“The Volkswagen group’s unparalleled know-how and strength in the premium segment is -- quite literally -- paying off,” said Winterkorn. “We will further extend our excellent position in this highly profitable business.”

Porsche will add the Macan compact sport-utility vehicle at the beginning of next year and development of an ultra-luxury SUV for the British Bentley unit is “well under way,” he said.

The Czech Skoda brand will double its lineup in China to six models, including the new Rapid compact sedan, which was unveiled at the Shanghai auto show last weekend. The Spanish Seat unit, VW’s only money-losing brand, is rolling out a revamped version of the Leon hatchback in a bid to spice up its image and return to profit.

Emerging Markets

VW’s presence in China, Brazil and Russia has enabled it to steer through the European industry gloom better than mass- market rivals PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, and Renault SA. (RNO) Peugeot is eliminating jobs and closing a factory to end losses as the region’s auto market shows no signs of a rebound.

VW yesterday reported that first-quarter operating profit fell 26 percent to 2.34 billion euros, matching the average estimate of five analysts surveyed by Bloomberg. The carmaker stuck to a goal for full-year operating profit to be on the same level as 2012.

VW’s revenue declined 1.6 percent in the first quarter revenue. That compares with a 6.5 percent drop at Peugeot and a 12 percent plunge at Renault. Peugeot said yesterday additional cost savings may be necessary next year if the market doesn’t improve.

Higher Investments

Winterkorn said today that European markets will remain “extremely weak for the foreseeable future.”

VW has ramped up investments to boost its manufacturing footprint outside Europe and roll out a new modular technology to speed up development and production of new vehicles.

It has seven new Chinese plants in various stages of planning, part of $19 billion in investments in production outside Europe expected by 2017. After spending $1 billion on a factory in Chattanooga, Tennessee, the company may further increase U.S. capacity with production of a sport-utility vehicle based on the Crossblue concept.

In addition to expanding its passenger-car operations, Volkswagen is forging a heavy-truck alliance with its Scania and MAN units to benefit from economies of scale through closer cooperation and take on global market leader Daimler AG. (DAI) Volkswagen made a low-ball initial offer on March 22 to other holders of MAN stock as it pushes for full control.

VW, which already owns 75.03 percent of the Munich-based company’s voting rights, will offer 80.89 euros per share. Investors who don’t accept the cash offer will receive a guaranteed annual dividend of 3.07 euros per share.

Hans Dieter Poetsch, VW’s chief financial officer, said at the shareholder meeting today that the VW and MAN supervisory boards have approved VW’s plan for a profit transfer and domination agreement at MAN, whose shareholders still need to vote on the proposal.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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