VW to Invest $71 Billion in Auto Unit to Surpass Toyota as World Leader

Volkswagen AG, Europe’s largest carmaker, will invest 51.6 billion euros ($71 billion) in the automotive business over the next five years to help reach a goal of surpassing Toyota Motor Corp. in sales and profit.

The 20-member supervisory board approved the outlays for plants, vehicles and developing the carmaker’s nine brands at a meeting today, Wolfsburg, Germany-based VW said in an e-mailed statement. The automaker’s Chinese joint ventures will spend an additional 10.6 billion euros through 2015, the carmaker said.

“We’re systematically pursuing the goals to further increase our profitability and to make VW the world’s most fit- for-the-future automotive group,” Chief Executive Officer Martin Winterkorn said in the statement.

The CEO is targeting a second straight year of record deliveries as he adds 70 models, including Audi’s new A1 compact and successors to VW’s Touareg SUV and Sharan family van. VW is aiming to sell more than 8 million cars by 2012 and 10 million as early as 2015, three years earlier than a 2018 official target, a person with knowledge of the matter said last month.

Volkswagen’s preferred shares gained as much as 1.65 euros, or 1.4 percent, to 120.80 euros and were trading at 120.15 euros as of 3:15 p.m. in Frankfurt. The stock has risen 84 percent this year, the best performer on Germany’s benchmark DAX Index.

New Vehicles

The manufacturer will spend 27.7 billion euros of the total to develop new vehicles and redesign existing ones, VW said. Money will also go to upgrade factories and equipment. More than half of investments in auto operations will be made in Germany.

“Auto markets are poised for further growth and VW is taking maximum provisions to share in that momentum,” said Aleksej Wunrau, a BHF-Bank AG analyst in Frankfurt with an “overweight” rating on the stock. “They want to be ready when markets take off and some of their operations, for instance in Russia and southern Europe, still have room for expansion.”

Still, VW in past years consistently failed to use up its budget for capital expenditure and might again realize that the 51.6 billion euros are “somewhat generous,” Wunrau said.

Toyota, the world’s largest carmaker, budgeted 670 billion yen ($8 billion) for plant and equipment spending in its fiscal year ending March 2011 and 760 billion yen for research and development. Toyota doesn’t disclose any mid-term spending plan.

Volkswagen said last month, when it reported nine-month net income of 3.78 billion euros, that net liquidity was 19.6 billion euros.

Factory Expansions

VW decided in September to produce the Amarok pick-up at a factory in Hanover from mid-2012, adding a second model line alongside the T5 van at its third-largest German plant. VW’s initial plans are to build about 40,000 Amaroks in Hanover for Europe. The Amarok, which is sold worldwide except for in the U.S., is currently made only at VW’s factory in Argentina.

VW is also increasing vehicle and component production at some of its 10 German factories. The automaker will increase daily output of the Tiguan compact SUV at its main Wolfsburg plant to 1,000 units next year from 750 and build more two-way shift gearboxes at a factory in Kassel, two people with direct knowledge of the matter said.

Some 400 temporary workers at both plants will be offered permanent jobs to meet growing demand, personnel director Jochen Schumm said in September.

This year, VW announced plans to add two more Chinese factories, bringing the total in the world’s biggest auto market to 11 as part of a 6 billion-euro investment to double production there to 3 million cars within four years. VW will also open a plant in Chattanooga, Tennessee, next year to supply the U.S. market and is expanding capacity in Russia.

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.

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