VW Shortens Investment-Plan Horizon on Europe Uncertainty
Volkswagen AG (VOW), Europe’s biggest carmaker, will spend 50.2 billion euros ($64.3 billion) in its automotive division through 2015, shortening its investment calendar from the usual five years as the region’s market uncertainty makes long-term planning more difficult.
The supervisory board today approved the funding, which is for plants, vehicles and research and development, the Wolfsburg, Germany-based company said in a statement. VW’s Chinese joint ventures, which are not consolidated, will invest another 9.8 billion euros during that time period.
“There are a number of uncertainties globally,” said Juergen Pieper, a Frankfurt-based Bankhaus Metzler analyst who recommends buying VW stock. “They may want a certain degree of flexibility, more than in the past, because there is room for quite dramatic changes in the market conditions.”
VW, which this year has added Porsche sports cars and Ducati motorbikes to build a stable of 12 brands, has offset its 0.6 percent 10-month decline in European deliveries with 20 percent growth in China. The European auto market is headed for a 17-year low in 2012, according to the Brussels-based ACEA industry group, which estimates 30 percent of the region’s production capacity is unused.
While usually laying out five-year programs, the crisis which hit the European car market in 2009 also prompted VW to announce a three-year investment timetable that year as forecasting became more difficult.
The shares dropped as much as 1.50 euros, or 0.9 percent, to 159.90 euros and traded down 0.5 percent as of 12:49 p.m. in Frankfurt. The stock has gained 39 percent this year, valuing the carmaker at 71.6 billion euros.
PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, is cutting 8,000 jobs to reduce spending. Peugeot in the last year has been burning through 200 million euros per month in cash reserves. The Paris-based company is more dependent on Europe than VW, with the region accounting for 64 percent of its sales in the nine months through September, compared with 42 percent for its German counterpart.
After introducing a new version of its bestselling Golf hatchback in September, VW is developing a further 40 models based on the same framework at brands such as Seat and Skoda in order to cut costs. The shared architecture should cut production costs by 20 percent, manufacturing time by 30 percent and one-time expenses by 20 percent, VW said in August.
VW intends to invest 24.7 billion euros in new models for its brands, which also include luxury automaker Audi, the only VW group marque whose sales have grown in Europe this year, Spanish subsidiary Seat and Czech Republic-based Skoda.
Among the new models will be a line-up of trucks at MAN, the truckmaker in which VW holds a 75 percent stake.
“Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals,” Chief Executive Officer Martin Winterkorn said in the statement.
The five-year 62.4 billion-euro investment program announced in 2011, which excluded brands subsequently acquired, equated to an average of 12.5 billion euros per year. Average annual spending in the plan announced today is 16.7 billion euros.
The carmaker, which counts Bentley, Lamborghini and Bugatti among its luxury nameplates, will invest 14.5 billion euros in the next three years to expand production capacity, including a new Audi plant in Mexico and extending a Porsche factory in Leipzig, Germany, to produce the Macan sports-utility vehicle. Some 60 percent of the total investment program is destined for Germany, VW said.
“The agreed investment is a clear indicator of the security of jobs and employment at Volkswagen in the face of the difficult industry environment,” works council head Bernd Osterloh said in the statement, adding that the funding will allow products to be produced “flexibly according to the market demands at each site.”
VW in China is building plants in Ningbo and Yizheng with its joint venture partner SAIC Motor Corp. (600104), adding to factories already operating in Nanjing and Shanghai. It also has production facilities run jointly with China FAW Group Corp. in Changchun and Chengdu, while building another in Foshan and an assembly plant in Xinjiang. China is VW’s biggest market.
Volkswagen’s global sales ranked behind General Motors Corp. and Toyota Motor Corp. (7203) in the first nine months. It aims to overtake the two companies by 2018.
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