The results season so far has seen everyone doing OK. Ford made a profit, Mercedes Benz hit new margins, PSA Peugeot Citroen pulled its socks up even before its recovery strategy is fully-formed and Renault did better. Then along comes Volkswagen and casts the lot of them into the shade. And it was all done so casually.
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Instead of having a stage full of figureheads to take the applause (and with the Porsche boys so influential now at Wolfsburg there are two full sets of figureheads to chose from) VW just put up the CFO, Dieter Potsch and Stefan Jacoby, newly-appointed president and CEO of Volkswagen of America, whose job it is to fix what VW regards as a badly underperforming market.
Potsch gave skimpy financial detail relative to the rest of the players in the half year results season. There were as many car pictures as financial ratios in his slide set. But the pair were on top of their game and batting it around nicely. They surrendered the juicy bits of information in response to questions.
The biggy was that they will probably have to build a factory in North America because VW is now busy feeding the growing South American market from Mexico. Another was that SEAT needs shock treatment involving a new management team, and EUR450m of extra investment for the next ten years to get the job finally done. Seat has been losing position not just in Germany but in its home market of Spain as well.
The really slick financial fact that was slipped in without dramatic emphasis, was the reminder that the profit being delivered this year was the profit that was forecast to be delivered in 2008. Ice cool.
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By GlobalDataThe US story was dollied up early in the presentation with a gentle: “North America is our biggest challenge, mainly because of the weak dollar. We clearly need a change of strategy here.”
That was in response to sales of EUR6.8bn being down 4% on last year. One of the analysts obligingly asked the question and the whole story erupted. In brief, the US needs special treatment. It needs its own VW product – customised sedans and SUVs. It needs far more “emotional, brand-building” stuff like the Beetle and the Golf [for which the 1970s US Rabbit name was recently revived – ed.]. Quality has to improve. The brand has to reposition from niche – to which it has drifted by default – and become mainstream volume to compete head on with the Japanese. It needs a whole new set of dealers. And it needs an organisation which is closer to the customer. “There are too many filters between us and the customer. It takes us too long to find out what is needed.”
It was a lovely bit of diagnostics from Jacoby. If he works as well as he talks we should be able to watch the new VW America literally rising out of the ground.
The final thing that was disarmingly frank was this: “If we do make EUR5.1bn (profit) we will get to our cost of capital.” It is not every company that will deliver unexpectedly high profits and then highlight the fact that they are unacceptable.
Analyst Adam Jonas toyed with that gentle second-serve: “I believe your cost of capital is 7%. You are telling us you need returns (RoI) in double digits. Therefore you need 30-40% growth at least?”
Answer: “Cost of capital last year was 7.6%. We do not expect that this year it will be very different. Therefore, yes we do need thirty or forty per cent to get there.”
Lovely stuff. It’s all so much better – whacking the ball into play and getting it vollied back so unerringly. What would be good is to have nothing but car slides at the full year results meeting and just a couple of blokes from strategy planning to chew the fat.
The one thing that bothers me though is the ball that went in OK and never came back. “The cash pile? It does not give me sleepless nights,” Potsch confirmed. “And we are working on a couple of strategic issues for which I would recommend the use of cash.”
Hello? What was that about? Hello?
Rob Golding
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