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VW CEO Confident of Meeting Full-Year Targets; Warns Against Continental Battle
18 Jul 08
VW's CEO is confident that the company will meet 2008 sales and financial targets despite the global economic slowdown, while admitting fears for the future
Global Insight Perspective | | Significance | VW CEO Martin Winterkorn says the company expects to meet its full-year revenue and sales targets despite the difficult market environment. Winterkorn also warned that a drawn-out and acrimonious Schaeffler bid for Continental would be bad news for VW. | Implications | In the context of a declining Western European market and the worsening global economy VW will do well to meet its 2008 sales and revenue targets and Winterkorn's comments will be welcomed by the markets and the company's shareholders. It is understandable that as one of Schaeffler's and Continental's biggest customers, VW wants a rapid resolution to any takeover fight. | Outlook | VW's long-term target of overtaking Toyota and GM to become the world's biggest volume carmaker by 2018 means it is vital that the company responds to any global economic downturn rapidly with the right product mix to take on the challenge of increasing oil prices and more rigorous regulatory standards. VW should be well placed to respond to these challenges although some consolidation of the company's sprawling brand portfolio should not be ruled out in the medium term. |
VW CEO Bullish on 2008 Financial and Sales Prospects The chief executive officer (CEO) of Volkswagen (VW) Martin Winterkorn has said he is confident that the company will deal with the current economic headwinds better than its rival companies and the VW will meet ifs 2008 financial and sales targets. These targets include year-on-year (y/y) increases in revenue, operating profit and vehicle sales. According to Dow Jones International, Winterkorn is hoping that the VW Group's already strong product line-up and new model launched will help boost sales for the full calendar year. At a press meeting at the VW headquarters in Wolfsburg, Winterkorn said, "There's of course a certain level of insecurity among consumers... I expect that with our new products we get a small special [tailwind]." Referring to the company's previously announced financial and global sales targets Winterkorn added, "We stand by what we've said." However, Winterkorn did voice misgivings about the medium-term outlook for global vehicle sales and the implications for VW. Winterkorn said he was worried about the "following years" and the continual upward pressure on raw material prices, especially those involved directly in vehicle production, such as steel, rubber and glass. He stated that these rises could not continue to be absorbed to the current extent by carmakers. He added, "We'll have to think about price hikes at some point... We can't compensate everything." Winterkorn also said that the VW Group was ensuring it had the right product mix to revitalise its fortunes in the United States, following the announcement earlier in the week that the company would re-establish a production presence in the country (see United States: 16 June 2008: VW Confirms Tennessee as Site of New U.S. Facility). The VW CEO believes there will be a major shift in vehicle buying trends in the United States towards smaller, more fuel-efficient vehicles and that VW will be well-equipped to meet that shift. He said, "In the U.S., individual mobility will remain a key issue... I think also in the U.S., there will be a down-sizing trend in terms of fuel consumption and engines... we have the right cars for that. " However, he confirmed that VW had also yet to decide whether to launch the new Polo and Scirocco in the United States although the former is likely to be added to the company's product line-up when it is launched in 2010. VW wants to triple annual car sales in the United States to 1 million a year by 2018, with its Audi premium brand accounting for 200,000 car sales. Winterkorn also confirmed that the new Mark 6 Golf which will be launched onto the market in 2009 will be considerably more profitable than its predecessor with a designed profit margin of between 5% and 7%. Winterkorn also gave his views on the bearing manufacturer Schaeffler's interest in major German auto components firm Continental (see Germany: 17 July 2008: Continental Rejects Schaeffler Bid; Plans to Alter Global Tyre Production Mix). Both companies are major suppliers to the VW Group and Winterkorn believes that an alliance between the two could actually be beneficial in the long term. However, he warned that a drawn-out and acrimonious fight between the two companies would weaken the position of both, and would prove damaging for VW and the wider German automotive industry. Winterkorn said, "What I would not see as positive is a power struggle with a hostile takeover. I would have a problem if they were to do battle for a half a year." Winterkorn also ruled out the prospect of forming an alliance with Continental's management in order to help stave off the Schaeffler takeover, saying that other carmakers would not see Continental as a preferred supplier if VW was a major shareholder. Outlook and Implications It will be reassuring news to VW's investors and workforce that Winterkorn expects Europe's largest vehicle manufacturer to hit its 2008 sales and financial targets. The company expects to exceed all its 2007 headline figures during the current calendar year, despite a gloomy prognosis for the global economy. In 2007, operating profit after special items came in at 6.15 billion euro compared to 2.01 billion euro in 2006. Revenue was up 3.8% on the year in 2007 at 108.9 billion euro from 104.9 billion euro in 2006. VW sold 6.2 million vehicles last year. However, as Winterkorn has said, it is not necessarily in this year's results that any global recession will begin to bite. With Global Insight forecasting that oil prices will peak at US$160 a barrel in the second half of 2009, it would appear that the worst is yet to come in terms of the global economic outlook. The latest ACEA sales result for June showed that European car sales fell by 7.9% y/y during the month (see Europe: 16 July 2008: European Registrations Sink 7.9% in June—ACEA), which is not good news for VW as a result of its comparatively heavy reliance on the European market. However, VW's brands did not fare too badly in this wider market collapse. However, VW is still making excellent progress in South America, China and Russia where it has stolen a march on its competitors by establishing extensive production and sales networks, years in advance of the recent accelerated sales boom in these markets. As a result VW remains in pretty robust shape, although it will be wary of the effect of the continuing rise in oil and raw material prices moving forward into 2009 and 2010. As a result it is not impossible that there will be some rationalisation of VW's brand strategy over the next few years, especially in light of Porsche's takeover of the company. The ultra-luxury Bugatti brand is an obvious target to be culled, while Porsche's management may not see the benefit of VW retaining two entry-level brands in the shape of Skoda and SEAT that offer broadly similar product line-ups and price positioning; especially as SEAT's sales have flat-lined in recent years while Skoda's have doubled in five years and are on target to record 700,000 units in 2008.
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