VW To Become Your Go-To Source For Electric Vehicles
To turn its sagging fortunes around and rebuild its shattered image, Volkswagen plans a major sales offensive in North America in the coming years. The automaker will launch a wave of light trucks and battery-powered cars.
“We will be significantly stepping up our activities in the U.S.A.,” Herbert Diess told Bloomberg Tuesday. “Our goals are high, and our strategy is very ambitious. Over the next few years, Volkswagen will change radically. Very few things will stay as they are,” Diess said. “The electric car will become the strategic core of the VW brand.”
Veteran Market Presence
While Volkswagen has been a presence in the North American market for nearly 70 years, the brand has never taken off to achieve major automaker status. And, although VW is the largest automaker in the world, right now, it is a comparably minor player in North America.
One of the reasons that VW has not been as successful here as it has been in Europe, where it is number one, and China, is that, observers say, the automaker has continually misread American tastes. For example, the automaker misread American tastes for large, affordable cars, such as Passat, and rolled it out just as the crossover market heated up, knocking sedan sales for a loop. And, now the automaker plans a near 900 percent increase in the number of SUVs and crossovers over the next three years, not knowing when the crossover market may peak and recede. It is entirely possible that crossover sales could tank in the next couple of years, especially if interest rates rise sharply. This type of outcome will knock down VW’s plan to jump to 19 crossovers and SUV from the current two. It could likely upset the automaker’s plan to become profitable in North and South America by 2020.
Its plan to push into the North American market is part of a more sweeping overhaul aimed at improving the automaker’s efficiency and profitability. Volkswagen is acknowledged to be one of the auto industry’s least efficient brands, having a large labor force and high fixed costs. It is estimated by the market research firm Exane BNP Paribas that VW’s productivity is 30 percent below its peers, while its per-vehicle costs are 60 percent higher than its closest rival Toyota.
Six Percent Profit Margin?
Under the overhaul plan, the automaker’s biggest unit, VW, plans to bump its profit margin to six percent and increase sales of electrics to 1 million vehicles per year by 2025. The efforts to improve margins are critical to VW. The automaker is facing at least 18.2 billion euros (about $19.1 billion) in settlement and repair costs in the wake of the Dieselgate scandal.
It is vital for VW to cut its costs and restructure because it needs cash to cover Dieselgate damages, as well as the cost of developing battery-powered and self-driving technologies. Indeed, VW and its unions reached an historic agreement last week where the unions agreed to cut up to 30,000 jobs worldwide, slashing 3.7 billion euros in expenses. Much of the electric car changeover will be funded by dropping underperforming models. The automaker plans to keep its investment budget stable at 4.5 billion euros (about $4.9 billion).
Sources: Bloomberg, Automotive News