Global Insight Perspective | |
Significance | VW Group maintained the strong growth rates reported in the first quarter, buoyed by its core VW brand and growth in emerging markets. |
Implications | Group sales were boosted by the continuing rise of the Audi and Skoda brands, and a strong performance in South America and China for the VW brand. |
Outlook | Combined with its growth plans for Audi and the improvements to productivity at its core German and European activities, 2007 looks set to be a strong year for VW on both the sales and the profit front. |
Volkswagen (VW) Group has announced that its global sales for all brands rose 7.6% year-on-year (y/y) to around 2.5 million vehicles for the year-to-date (YTD) period ending May, according to a company release. Sales were buoyed by a 7.1% rise in sales of the core VW brand to around 1.5 million units, while Skoda sales leapt an impressive 14% to 255,000 units, and sales of premium brand Audi also continued to expand, by 9.6% to 420,000 units. Commercial vehicle sales also rose by an impressive 9% to 191,000 units, and it was only the struggling Spanish brand SEAT that let the side down, its sales falling 1.6% to 180,000 units in the five-month period.
Regionally, sales were boosted by strong growth in emerging markets, with South America and South Africa reporting the highest percentage growth in volumes, of 24% to 322,000 units, while Asia-Pacific was not far behind with growth of 20%, equating to 414,000 units. Europe and other markets reported a 2.9% rise, equating to the bulk of the group's sales at around 1.58 million units. North America showed signs of improvement at last, sales there rising 1.8% to 180,000 units thanks to the Audi brand.
Outlook and Implications
VW Group’s performance for the YTD ending May kept pace with its impressive record first-quarter growth rates. The group reported a volume percentage increase of 7.9% in the first quarter to 1.47 million units, its highest ever quarterly sales result.
Brand sales in January-May were led by an impressive rise at the core VW brand, despite suffering a harsh decline in the company's key German market, where sales fell 11.6% in the period to 241,389 units. However, elsewhere in Europe, notably the United Kingdom, France and Eastern Europe, the VW brand has performed well. Furthermore, with the imminent launch of VW's Golf-based Tiguan sports-utility vehicle (SUV), the brand is looking to broaden its appeal to popular growing niches and compete with the successful Nissan Qashqai. VW is also performing well in the booming South American market, where it is fighting hard with Fiat for top spot, and in Asia, where it has returned to an above-market rate of growth in the key Chinese market. In the United States, the VW brand is still struggling as it tries to realign itself in the increasingly competitive landscape.
VW is also looking to increase productivity as well as sales. The head of its German works council, Bernd Osterloh, said this week that the company is looking to increase productivity at its main plant in Wolfsburg by 12.5% in 2007 (see Germany: 19 June 2007: VW Labour Chief Sees Further Productivity Gains, Output to Reach 6.5 mil. Units). The carmaker wants to increase capacity utilisation by tightening collaboration between its development, purchasing and production activities.
Audi brand reported record global sales in May and has ambitious long-term goals, aiming for 1.5 million sales by 2015, and hoping to become the number-one premium brand in volume terms. To achieve this, Audi is aiming to double volumes in the United States and China in the long term, and to enter volume niches such as the premium subcompact B segment with the A1. However, in its attempts to achieve this ambitious target and become number one, Audi will not only face stiff competition from established German rivals, which are maintaining ambitious targets of their own, but also from Lexus and Infiniti going forward.
Skoda meanwhile continues to perform strongly, planning a record year for production and achieving widespread success with the new Fabia B-segment player. Skoda delivered 254,680 vehicles in the first five months of 2007, unit sales growth of 13.8% y/y. Skoda is planning to solidify its market share in Europe, while firmly setting its sight on markets such as China, Russia, and India. In China, the Czech brand is establishing a sales and marketing network independently of its parent company's extensive existing operations, and is expecting to produce over 100,000 vehicles as early as 2009 (see China: 7 June 2007: Skoda Launches Vehicle Sales in China). In order to meet the overall growing demand for Skoda vehicles, which is expected by the company to grow by about 10% annually, the Czech carmaker is planning further investments in its facilities in its home country (see Czech Republic: 11 June 2007: Skoda to Invest in Production, Green Line Confirmed).
The only cloud thus far this year has been cast by Spanish brand SEAT, which continues to suffer due to the lack of a cohesive design and product strategy and the lethargy in the Spanish market. However, VW is actively seeking to turn the brand around rather than sell it, the latter not really being a viable option as it is totally integrated with VW's technology and platforms. The company announced its overall ambitions for the brand late in May (see Spain: 23 May 2007: SEAT Aims to Double Production to 800,000 Cars by 2018; Plans Low-Cost Model), which see the brand building some core models in keeping with the brand’s heritage and domestic market.
Volkswagen look set to repeat the performance of the first quarter and report a record half-yearly sales total next month.