VW’s strategy allows Europe’s biggest carmaker to build a wider range of models across brand lines at a cheaper price by using the same engines and components. It also means customers may opt to spend less money and buy a car from the Skoda and Seat units instead of the more expensive VW brand.
“I specifically came here to look for a VW but Skoda is so much cheaper,” said Manfred Hennerkes, a factory mechanic at Siemens AG, taking a seat in a Skoda Superb at the carmaker’s showroom on Berlin’s Unter den Linden boulevard. “I don’t care about the nameplate, it’s essentially a VW for great money.”
VW, which is merging with Porsche SE, is seeking to overtake Toyota by 2018 by expanding sales and a line-up of about 200 models across its nine brands. It’s a strategy that contributed to record losses at U.S. rivals General Motors Co. and Ford Motor Co. before they reversed course to reduce the number of brands and shed divisions.
“VW is becoming quite complex,” said Anil Valsan, director of automotive research at London-based Frost & Sullivan. “It remains to be seen to what extent VW can afford some of its brands cannibalizing each other.”
Volkswagen’s preferred shares fell 83 cents, or 0.9 percent, to 89.12 euros as of 2:04 p.m. in Frankfurt. The stock is up 36 percent this year, valuing the carmaker at 39 billion euros ($53.2 billion)
VW is losing 500 million euros in profit every year as the namesake brand’s customers flock to cheaper Skoda and Seat models, according to an estimate by Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen.
“VW’s problem is they afford too many brands in respective segments and want the brands to cover large spectrums,” he said. “Skoda has done an excellent job at exploring the vast technology of VW. But they have developed a bit of a life of their own now. That hasn’t escaped Winterkorn.”
Alfa Romeo Interest
Chief Executive Officer Martin Winterkorn intends to integrate Porsche, maker of the 911 sports car, into VW’s modular strategy under Porsche CEO Matthias Mueller, VW’s former chief product strategist, who took over last night. Winterkorn also plans to forge a trucks alliance between Scania AB and MAN SE, and develop small cars with Suzuki Motor Corp. after buying a 19.9 percent stake.
And VW isn’t done with expansion yet. The German company is still interested in buying the Alfa Romeo brand from Fiat SpA, supervisory board Chairman Ferdinand Piech told reporters late yesterday on the eve of the Paris Motor Show. Fiat has no intention to sell Alfa, CEO Sergio Marchionne said today.
Ford and GM are taking the opposite tack. Ford, the second- biggest U.S. carmaker, may trim its product lineup to as few as 20 models, CEO Alan Mulally said this week. Ford sold Volvo Cars in August after previously divesting Jaguar, Land Rover and Aston Martin. GM, preparing for an initial public offering a year after a U.S. government bailout, sold Saab in February and has closed its Hummer, Saturn and Pontiac units.
‘Feet on the Ground’
“We’re aware that we have set a fast pace,” Winterkorn, 63, said in an interview last night at an event to showcase the Wolfsburg, Germany-based carmaker’s offerings. “But we still have both feet planted very firmly on the ground. We have the experience and the skill to manage a multi-brand group of this format well.”
Volkswagen may achieve its annual sales goal of 10 million vehicles before the planned target of 2018 after nine-month deliveries exceeded 5 million for the first time, sales chief Christian Klingler told reporters today. Klingler raised his forecast for industrywide growth in 2010 to as much as 7 percent, and said VW may outperform the global market.
Multi-brand groups like VW are naturally at risk of over- expanding, though VW has developed a cost-saving strategy to run its portfolio, said Juergen Meyer, who manages 1 billion euros at SEB Asset Management in Frankfurt including Porsche shares. The extent of the group’s other units encroaching on core VW brand buyers is minor, and competition within the VW group is preferable to losing customers to rivals, he added.
Stuttgart, Germany-based Porsche will be vying with Audi and Lamborghini, the Italian maker of the $450,000 Murcielago SuperVeloce sports car, within VW to develop high-end sports cars, said Christoph Stuermer, an analyst at IHS Automotive in Frankfurt. Mueller’s task will be to complement and expand Porsche’s four-model lineup with a goal of doubling sales to 150,000 units, Winterkorn said July 6.
“The challenge for VW will be that modular-design policies won’t work for supercars,” Stuermer said. “Lamborghini and Porsche have no choice but to stake out their differences. This somewhat exposes the limits of the VW philosophy.”
VW, which posted a first-half net income of 1.82 billion euros, must turn around the loss-making Spanish Seat unit and Bentley ultra-luxury brand, as well as return the U.S. operations to profit to keep the profit momentum going.
“VW’s well positioned but there’s anything but reason for complacency,” said Stefan Bratzel, director of the Center of Automotive at the University of Applied Sciences in Bergisch- Gladbach, Germany.
Back in Berlin, Hennerkes is looking to sell his Golf station wagon and buy a Skoda. Built on a single platform, Skoda’s Superb station wagon sells for 2,500 euros less than VW’s Passat model while the Fabia compact is 1,695 euros less expensive than VW’s Polo.
“The Superb is effectively a Passat with a lower profit margin,” the 52-year-old German said. “It begs the question why VW is doing this?”
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