Volkswagen puts conquering Americas at heart of turnaround plan

Aims to triple VW brand margin to 6 pct by 2025

By: Reuters | Wolfsburg | Published:November 22, 2016 8:14 pm

Volkswagen will need to conquer the Americas, the region at the centre of its emissions scandal, to deliver a turnaround at its core VW brand, Europe’s largest carmaker said on Tuesday. VW said it would launch a series of higher-margin SUVs, limousines and electric cars to try to win back customers in markets where it has long lagged competitors.

VW brand chief Herbert Diess conceded it would take a decade to catch up with rivals in the United States, where the company has faced billions of dollars in fines and compensation payouts since admitting last year to fixing diesel engine tests. But he said success was vital to reviving the core brand that accounted for 59 percent of the German group’s auto sales in 2015 but only 16 percent of group underlying operating profit.

“We not only want to be profitable in Europe and China but are determined to generate positive results in all major markets by 2020,” he told reporters. Volkswagen last week announced a cost-cutting deal with labour unions that will allow it to axe 30,000 jobs at the VW brand by 2020.

On Tuesday, Diess set out a recovery strategy to 2025 and beyond, spanning a wide range of initiatives including SUVs, electric cars, digital services and plans to launch a budget car in China and India by about 2019-2020.

The long-term goal, he said, was to lift the VW brand’s operating profit margin to 6 percent by 2025, compared with just 2 percent forecast for this year. That would still lag some rivals such as PSA Peugeot Citroen , which is aiming to hit 6 percent in 2021.

“It’s good and necessary that VW is tackling those issues, but it will be a long road,” said M.M. Warburg analyst Marc-Rene Tonn, referring to the plans to fix underperforming markets and lift margins. He has a “hold” rating on Volkswagen shares.

BLUEPRINT FOR SUCCESS

The VW brand has long struggled in North America and some emerging markets, with analysts blaming its reluctance to adapt to local tastes and delays in launching new models.

“For years we have been lacking a blueprint for success in the U.S., while we are losing ground to rivals in markets like Brazil or India. In part we have also missed market trends, above all the SUV boom,” said Diess, a former BMW executive who joined VW in July 2015.

The brand now plans to have 19 SUV models globally by 2020, up from just 2 now, and including some electric ones. In total, it aims to sell 1 million electric vehicles a year by 2025.

Diess said investment in the VW brand would remain at around 4.5 billion euros ($4.8 billion) a year, with savings of around 2.5 billion euros from scrapping unidentified unprofitable models to help pay for new ones.

The brand is also building a new digital platform for a range of services such as ride hailing and car sharing which it expects to have 80 million users worldwide by 2025 and generate annual revenue of around 1 billion euros.

Shares in Volkswagen, whose 12 brands range from upmarket Audi and Porsche to the cheaper SEAT and Skoda, were up 0.2 percent to 120.35 euros by 1335 GMT. The stock is still down around a quarter in value from before the emissions scandal.