VW Unveils Chinese Sales Push and Major Investment Plan; Announces New Board Members

Volkswagen (VW) has announced details of its future growth strategy as it bids to overhaul Toyota as the world's number-one carmaker by 2018. Although the company is already the biggest carmaker in the world's second-largest passenger car market, China, through its joint ventures (JVs) with Shanghai Automotive Industry Corporation (SAIC) and First Automotive Works (FAW), VW is relatively unrepresented in southern China. The company will look to triple its sales in this territory by 2018, which will be the main driver of growth in the company's global sales volumes. This would double VW's current sales volumes in China as a whole to 2 million units, while VW is also aiming to overhaul General Motors (GM) as the biggest-selling original equipment manufacturer (OEM) group in southern China by 2010. Commenting on the plan, the president and chief executive officer (CEO) of VW's Chinese operations, Winifried Vahland, said, "The extraordinary growth in our sales volume in China will continue to accelerate our pace of development and may well achieve far ahead of our schedule of 2018 of 2 million units." VW is the dominant market player in northern and eastern China with a market share of 20%, whereas it has a market share of only 12% in the south of the country.

In addition, VW's supervisory board has given the go-ahead to the takeover of Porsche and agreed on a 25.8-billion-euro (US$38.3-billion) three-year investment programme towards property, plants, equipment, and development. VW said that it will earmark an increased proportion of its future revenues for capital expenditure, with around 6% of total turnover going towards new investment. The majority of this figure, around 13.3 billion euro, will be allocated towards spending on property, plant, and equipment in the automotive division, investment that will go towards further improving the company's product range and group-wide vehicle technology. Speaking about the plans, VW's chief executive, Martin Winterkorn, said: "The automotive industry is facing significant economic and technical challenges. The Volkswagen Group is vigorously driving forward its long-term growth strategy by investing in environmentally friendly models, innovative technologies and new plants. We are continuing to make focused investments in our future." The company also announced that it will complete the acquisition of Karmann, the insolvent contract manufacturer. VW intends to establish a new car-making subsidiary operation at its base in Osnabrück (Germany), which will be intended to launch a new niche vehicle by 2011. VW has not intimated what this model will be but it is possible that it could make the production version of the Bluesport concept there, which made its debut at the Detroit Motor Show (United States) earlier this year.

In addition, the company also announced new appointments to the main management board of the company, aimed at cementing the VW Group's growth strategy. The board will now also include Audi chairman Rupert Stadler, who is the rising star among the management of the VW Group of companies. It is likely that the 46-year-old Stadler has been added to the main board in preparation for him taking on the role of executive chairman of the entire VW Group when Martin Winterkorn eventually opts to stand down. The other addition to the board is 41-year-old Christian Klinger, who has been appointed board member for sales. Klinger will also continue in his role as the VW brand's board member for sales, marketing, and after-sales. Klinger is an experienced hand in the retail side of the automotive industry and has held a variety of roles in the sector. From 1995, he headed growth projects at Porsche Holding Österreich and was responsible for establishing activities on the French market. In 1998, he became a member of the board of management of the PGA Group, an international sales partner for many different automotive brands in Europe headquartered in Paris, and was appointed its chairman in 2002. Klinger was a member of the board of management of Porsche Holding Österreich from 2004 to 2008, before being appointed to the board of management of the Volkswagen brand. He will effectively take on the responsibilities of Detlef Wittig, who will assume responsibility for the VW Group's international investment projects.

Outlook and Implications

VW has made a series of corporate announcements following Friday's (20 November) meeting of the supervisory board, aimed at solidifying the company's international growth strategy and ultimately helping it achieve its "Strategy 2018" goals—the company is looking to overhaul Toyota as the world's number-one carmaker by sales volumes by 2018. There is little doubt that the VW Group will emerge from the global downturn as the best-positioned global carmaker. For the first three quarters of the calendar year VW posted near-identical sales volumes in comparison with the equivalent period last year—4.76 million units versus 4.78 million units. This is quite simply a phenomenal achievement given the depressed state of the global vehicle market since the onset of the global economic crisis in October 2008. This also means that the company's global market share has risen to 11.7%, in comparison to 10% in January-September 2008. This has been achieved partially thanks to the company's highly fuel-efficient powertrain technology across the entire group and its extensive programme of new model renewals.

However, the company has also benefitted from its global sales mix, with its major markets such as China, Germany, and South America all holding up well this year as a result of a mixture of scrappage programmes and purchase tax cuts. In addition, the VW Group's relative weakness in the United States has actually helped it increase global market share as a result of the large falls in the world's biggest single market this year. The new board appointments will strengthen the company's operations, especially in the field of retail sales, while its future growth strategy in China looks a good bet to generate meaningful sales volume growth. In addition, the board's decision to finally sign off the acquisition of a 49.9% holding in Porsche Automobile Holding SE will pave the way for the sports-car manufacturer to become a fully integrated member of the VW Group of brands. This will further strengthen the group and add around 100,000 units to its global sales volumes. By the end of 2009 IHS Global Insight forecasts that the VW Group will overhaul GM as the world's second-largest vehicle group by sales volumes, while it will be only 1 million units behind Toyota's 2009 forecast sales total of 7 million, which will be just under 2 million units less than the Japanese automaker recorded last year. However, we are somewhat sceptical about VW's plan to overhaul Toyota by 2018 as Toyota is expected to bounce back thanks to new investment and aggressive growth strategies in the BRIC (Brazil, Russia, India, and China) markets.