VW Group will continue with the development of hybrid and electric motors, where it badly lags behind Toyota Motor. The Jetta will be its first volume hybrid car.
Volkswagen Group will invest €50.2 billion in its Automotive Division in the coming three years after approval by its Supervisory Board last week. It’s the latest step in Volkswagen Group’s attempt to become the world’s largest automaker by 2018. The ambitious target that will require overtaking GM and holding off a resurgent Toyota, neither of which will concede sales lightly.
VW claimed that two-thirds of the investment program would be for increasingly efficient vehicles, drives and technologies, as well as “environmentally friendly production” in the period up to 2015. (Read Global Light Vehicle Sales Flat in October at 80.6 Million and Volkswagen Group Posts Record Profit of €11.3 Billion)
With capital expenditures at roughly 6%-7% of annual sales revenues, the Group will have the capacity to become Number One. Two caveats: that is if global sales expand as projected; and if buyers make it the biggest, by choosing one car, van, truck or commercial vehicle at a time during the ongoing automotive marketing wars.
On top of the capex expenses, the Volkswagen Group will spend €10.6 billion on revising and developing new vehicles. Moreover, given the growing product portfolio, the Group will have to allocate money wisely because mistakes can be costly and hurt other businesses that could have used the money better.
One clear beneficiary of the latest expansion plan is Porsche, which VW has now swallowed completely. In December 2009, VW took 49.9% ownership in Porsche AG at a price of €3.9 billion amid the aftereffects of a reckless, leveraged and failed takeover bid of Volkswagen by Porsche that saw the ouster of Porsche chief executive Wendelin Wiedeking and chief financial officer Holger Haerter, both now relegated to the Porsche history books. (Porsche Q3 Profit up 23% to €1.88 billion with +18% Margins) MAN will also get a new generation of heavy truck now that VW also controls it. Both takeover brands are now consolidated in the Group’s accounts.
China is the one area that remains unconsolidated. VW said its joint ventures in China would invest a total of €9.8 billion in new production facilities and products in the period from 2013 to 2015. These initiatives will be financed from the joint ventures’ own funds generated from sales in the world’s largest car market where VW Group trails market leader General Motors.
Outside of China, Volkswagen Group investments in property, plant and equipment will account for €39.2 billion, with 60% going to Germany, which is ensnared in the Eurozone crisis. VW operates 27 German production facilities, and dominates sales in Europe with Group sales at 2% share more than twice that of its nearest competitor struggling PSA Group. Other investments will see the opening of an Audi plant in México, and the addition of the new small Porsche Macan sport utility vehicle to an expanded Leipzig plant in Eastern Germany. (EU Car Sales Continue to Evaporate in October – Off -5%)
“Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals”, said Prof. Dr. Martin Winterkorn, Chairman of Volkswagen Aktiengesellschaft’s Board of Management in Wolfsburg. (Volkswagen Board Extends Contract of CEO Martin Winterkorn)
