http://www.businessweek.com/news/2012-10-21/volkswagen-plans-to-invest-4-dot-4-billion-to-expand-in-brazil

Bloomberg News

VW Shifts Cars to China, Expands in Brazil to Offset Weak Europe

October 22, 2012

Volkswagen AG (VOW) is exporting cars to China and expanding factories in Brazil in an effort to offset declining demand in Europe.

VW has reined in production in Europe to avoid building up inventories of unsold cars, Chief Executive Officer Martin Winterkorn said today at the Sao Paulo motor show. To bolster plant usage in its home region, the Wolfsburg, Germany-based company plans to export 200,000 cars, including Audi and Skoda models, to China next year, as the carmaker becomes “more cautious” on Europe, he said.

To further reduce its exposure to Europe, VW also plans to invest 3.4 billion euros ($4.4 billion) in upgrading its model lineup and factories in Brazil through 2016. The spending includes 126 million euros at its component plant in Sao Carlos to expand production to 4,800 engines a day from 3,800 now.

“Brazil is very much a cornerstone” of VW’s strategy to become the world’s largest carmaker by 2018, Winterkorn said.

Even with the European car market poised to suffer its biggest annual drop in 19 years, VW is sticking to its 2012 targets, which includes its goal of matching last year’s record operating profit of 11.3 billion euros. VW is helped by a strong position in Brazil, built during nearly six decades in the Latin American country. Brazilian car sales are forecast to grow 8.6 percent to 3.28 million vehicles in 2012, according to IHS Automotive.

VW’s shares fell as much as 1.55 euros to 148.35 euros and were down 80 cents at 3:37 p.m. in Frankfurt trading. The stock has climbed 29 percent this year, valuing the company at 66.2 billion euros.

Incentive Lapse

A temporary tax reduction has helped lift industrywide sales this year. Allowing that incentive to lapse will cause demand to drop, VW’s Klingler said.

“The ending of incentives in Brazil will make car sales shrink for six to eight months,” he said.

Still, with a young population and about 40 percent of the country with the potential to become first-time car buyers, the German carmaker sees further growth potential in Brazil, which ranks as VW’s third-largest market.

VW today presented a two-door version of the best-selling Gol hatchback as a new entry-level offering in the market. The company also premiered a pre-production version of the Taigun compact sport-utility vehicle at the Sao Paulo car show.

The model will be “an important vehicle” for VW’s Brazilian growth plans if the company goes ahead with a production version, Winterkorn said.

VW’s investment in the country will include standardizing factories and installing technology to manufacture cars based on the company’s MQB platform, which is the basis for the VW Golf and other models, Michael Macht, VW production chief, said at the VW presentation.

“I see enormous potential in Brazil just from the systemic implementation” of parts sharing, he said.

To contact the reporter on this story: Christian Wuestner in Berlin at cwuestner@bloomberg.net

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


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