VW-Brand Car Sales Up 8% in Q1; May Take Over Nanjing Fiat Factory in China

Global Sales Rise 8.4%

The Volkswagen (VW) brand has reported that its global sales rose by 8.4% year-on-year (y/y) to 920,000 units in the first quarter of the year, according to preliminary figures. The rise was thanks to ongoing strong growth in South America and China and a recovery in its domestic German market, where sales rose 8% y/y to 121,000 units.

VW Launches Passat CC

The results were announced by VW at the official launch of the new Passat CC in Germany. Brand executive board member Ulrich Hackenberg commented at the ceremony that the company hopes to attract new customers to the brand by entering this segment.

VW May Take Over Fiat/Nanjing Factory

The Chinese market was where VW recorded the highest volume growth in the first quarter, its sales rising 32.5% y/y to 268,200 units across its two joint ventures (JVs) with SAIC and FAW in mainland China, Hong Kong, and Macao. VW is reported to be considering boosting capacity in the country by taking over Fiat and Nanjing's defunct manufacturing facility in east China. SAIC and Nanjing merged last year, killing off the latter’s ailing JV with Fiat, and now VW needs to add production capacity to meet brisk demand, a Volkswagen spokesperson in China said. "There are several options. Nanjing would be one of the options", said Kai Grueber, referring to the east China plant that Fiat has agreed to sell to SAIC

Grueber denied that a deal had been concluded, however, stating that the company has not signed any agreement to take over the plant as yet. The Nanjing plant has an annual production capacity of 60,000 vehicles a year, which could be raised to 100,000 by 2010. Shanghai Volkswagen's current annual capacity is 500,000 units.

In the booming South American market of Brazil, VW-brand passenger car sales meanwhile rose 25.7% y/y in the first-quarter period to 126,161 units. The figures for Argentina have not been released yet, but a similar rise is expected in this fast-growing market.

MAN in No Rush for Alliance, Says CEO

Separately, the chief executive officer (CEO) of German truck-maker MAN, Hakan Samuelsson, has said in an interview that the company is in no rush to form a three-way alliance with Volkswagen Trucks and Scania, and wishes to remain independently listed, according to a Süddeutsche Zeitung report. "We are busy expanding our [truck-making] capacity so all potential alliances are not an acute subject for us", Samuelsson said. "What is important in the end is what an industrial alliance can do better together than separately. But it is also clear that MAN can successfully grow above all if it remains a listed company", he added. VW recently increased its stake in Scania to a majority shareholding, and it is also MAN's biggest shareholder with a stake of 30%, and it has been trying to broker a friendly three-way deal after Scania fought off a hostile bid by MAN last year.

Outlook and Implications

VW announced the positive sales figures at the launch of the Passat CC, one of a number of new models targeting new niches for the brand. The somewhat bullish belief that the Passat CC will attract new customers, rather than cannibalising existing Passat sales, appears to be overly optimistic in the first instance. Initial forecasts predict that sales of the Passat CC will peak at nearly 40,000 units by 2010, but this will be accompanied by an equivalent decline in volumes of the standard Passat model. Some of this is to be expected as the existing Passat hit its peak volumes last year anyway, at over 510,000 units, and is at the start of the downward curve in its model cycle. Initially it appears that the Passat CC will succeed in arresting some of this decline.

The VW-brand sales figures also disguise the fall in the overall group performance in Western Europe, where sales were down 2.6% in the first quarter to 717,000 units. Furthermore, the 25% growth in Brazil was below the headline growth rate of 28% for the country’s passenger car market as a whole. Nevertheless, as one of the significant volume players in both these markets, the VW-brand results are impressive and an indication of the success of the current model programme.

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