IHS Global Insight Perspective | |
Significance | Europe's largest carmaker the Volkswagen Group has announced that its net profit rose by 13.7% in 2008 to 4.688 billion euro despite the sharp deterioration in the global market towards the end of 2008. |
Implications | The result confirms VW as without doubt the most financially robust European carmaker, while the company's impressive profitability during a difficult period will be looked on with envy in Tokyo and Detroit. |
Outlook | Volkswagen appears to be the OEM with the best chance of making ground up on its rivals during the current economic crisis as a result of its strong cash reserves, diverse brand and model portfolio, strong powertrain line-up and its market penetration in Latin America and China. |
The Volkswagen (VW) Group has announced its full-year 2008 financial results, which saw the company post a net profit of 4.688 billion euro (US$5.903 billion) a 13.7% year-on-year (y/y) increase on 2007's 4.122 billion euro. The result has pleased VW's management and its principal shareholder Porsche as the company managed a significant increase in net profits in spite of the onset of the financial crisis which badly affected the sales of all global OEMs in the final quarter of the year. Chairman Martin Winterkorn said, "We met our target and surpassed our record results for 2007 even though conditions were tougher. The current year remains extremely difficult for the entire automotive industry. Our target is to fare better than the overall market. The strength of our multi-brand group stands us in good stead. With our attractive new products such as the Polo, the Golf, the Audi A4, the SEAT Ibiza and the Skoda Yeti we are well positioned to emerge strengthened from the crisis."
2008 Full-Year VW Financial Results (euro, bil.) | |||
2007 | 2008 | % Change | |
Revenue | 108.9 | 113.8 | 4.5 |
Operating | 6.333 | 6.151 | 3.0 |
Net Profit | 4.688 | 4.122 | 13.7 |
As well as the impressive overall rise in net profit VW posted some other very strong numbers as part of its full year financial results. The company managed to increase its overall group sales by 1.3% y/y to 6.272 million units, up from 6,192 million units in 2008. This would suggest that the Group upped the margin on each vehicle sold in 2008 as a result of the far higher increase in net profit in comparison to group sales, and this appears to be borne out by the strong sales of the Audi brand in 2008, which rose by 4.1% to 1,003 million units. This was largely thanks to the launch of the new A4 D segment which was brought to market at the start of the year, as well as continuing strong demand for the A5. However, enhanced operating efficiencies have also played a significant role in the large increase in net profit. Revenue increased by 4.5% to 113.8 billion euro, up from 108.9 billion euro, while operating profit also increased by 3% y/y to 6.333 billion euro, up from 6,151 billion euro.
Outlook and Implications
The VW Group appears to have massively bucked the trend in the global automotive industry in 2008. Last week General Motors (GM) announced a US$31 billion loss (see United States: 27 February 2009: General Motors Reports US$31-bil. Loss in 2008) while Toyota has already said that it is forecasting a net loss for the year, despite having not yet released its full official 2008 results. These companies, along with Ford, are VW's rivals among the global OEMs and none of them are able to match VW's robust financial performance. With its diverse range of brands and young model range across its brand portfolio, VW has an enviable level of segment coverage across the entire spectrum of the vehicle market. It also has an extremely strong track record in the development in low emissions, high fuel efficiency powertrains, a technology that is set to increase in importance in the coming years as a result of increasingly stringent emissions regulations, in the European Union (EU) in particular, and rising fuel costs. In a press release VW claimed that the Group now has a total of 105 models with CO2 emissions of less than 140 g/km, and 24 models emit less than 120 g CO2/km. In Geneva today the company has launched the latest variant of the Polo with the BlueMotion variant managing CO2 emissions of just 96 g/km and a highly impressive combined fuel consumption figure of 74 mpg. This kind of technology can give VW an increasing competitive edge over its rivals as it looks to roll out its "18 plus" strategy, which will is aimed at making VW a global market leader in environmentally friendly powertrain technologies. The company also has the advantage of being able to amortise development costs across its brand portfolio and its shared platform and powertrain strategy has proved an undoubted success in this regard.
In 2009 VW has said that it will further extend the Group's product portfolio and cover new market segments, although it has itself said it will of course be affected by the current downturn and that 2009 sales and profit figures will not match last year's numbers. However, VW is likely to outperform the market as a whole and the early indications from the company's January sales figures indicate that this is indeed the case (see World: 12 February 2009: VW Group Sales Fall 21% in January). This will see VW emerge at the end of the year with a greater share of the global vehicle market, which will in turn affect the fortunes of its direct rivals, which should further strengthen its position as GM and Ford continue to struggle for survival and Toyota struggles with massive overcapacity.
The company said it would not make any concrete predictions for the year ahead as a result of the adverse market environment in the early weeks of 2009. In a statement VW said, "The high volatility of market developments does not currently permit any reliable forecasts to be made for fiscal year 2009. Based on the extremely weak business at the beginning of the year, earnings will not reach the high levels of previous years."