In this month’s management briefing, Rob Golding runs his financial rule over the financial position of the automotive industry’s major OEMs. In this instalment: Volkswagen, BMW and Daimler.

Volkswagen Group

Volkswagen is on a roll. Never mind that it has high costs and sells premium products in all sectors; the German group delivered 15% more vehicles last year (2011) than it did the year before. And in doing so it made substantially more money.

All its publicity repeats that it is intent on being BIG. VW believes that being able to say that it is the world’s largest car company will be of great help in its marketing. The race is on therefore to get ahead of GM which in turn aims to grow through partnership with PSA.

“Our strategy is working,” says chairman, Martin Winterkorn.  “VW is well on its way to taking pole position in the automotive industry, though we still have some way to go.”

Deliveries of cars and trucks were a million up on last year at 8.3 million. Revenue increased by 25% to €160bn. The operating profit rose to €11bn. Happy shareholders abound at QATAR Petroleum and the State of Lower Saxony, the two largest stakeholders.

The growth is not just more of the same. The Beetle is back but in the form of a comfortable saloon. There is an Audi Q3. And VW has dropped down the size range to create the up! …a small car.

There is a new plant at Chattanooga. VW has acquired Porsche Holdings Salzburg, the dealer group.

A cool EUR76bn is being invested in China, in new manufacturing facilities, and in more new models.

The ambition and determination is really quite extraordinary at a time when demand is poor and pricing is weak. Winterkorn is emphatic: “The Volkswagen Group has what it takes to outperform its competitors.”

A glance through the list of territories in which VW sells most of its cars reveals that the group has only messed up in Poland and Brazil and there they are only down by single digit percentages. Asia Pacific, North America, Central and Eastern Europe are all up year on year by more than 20%.

It’s even more remarkable to look through the product sales. There is just one failure: Bugatti. It sold 38 worldwide last year compared with 40 the year before; hardly a disaster.


Like VW, BMW has fire in its belly. Like VW, it likes to set tough targets and then publicise them so that the whole organisation is on the hook. Any shortfall is public humiliation.

“We are on target to hit new highs in volumes and pre-tax margins, and an EBIT (earnings before interest and tax) margin of between eight and ten per cent,” said Norbert Reithofer, the chairman. The warm comfort blanket for the forecast is provided by the new 3 Series which showed up in mid-February.

There is also a 7 Series revision in July and the four-door version of the 6 Series coupe – the first four door coupe in company history and a rival to the Mercedes CLS which kicked off the trend.

MINI and Rolls-Royce will also grow. So will the in-house financial services business. The motorcycle business is spawning a scooter for urban commutes. A return on equity of 18% is as good as in the bag.

Reithofer has sharpened some of his forecasts. A while ago he promised two million vehicles by 2020. That is now 2016.EBIT margins on the auto sector will be between 8% and 10%. The capital expenditure ratio will rise from the present 5.4% to 7%.

What BMW has learned is that no matter how tough the going, the tough get going on more and more new product development. What has also become clear is that the premium car market is better isolated from economic weakness than the volume sector; so carry on regardless.

For the shareholder there is a comforting gesture. The annual meeting of shareholders in May will be invited to approve an EUR2.30 dividend on the common stock which is a whopping rise from last year’s EUR1.30.

The BMW, Mini and Rolls-Royce brands all grew last year but Rolls took the winner’s laurels on the top step. It hit the best sales tally last year in its 107-year history with 3,538 cars sold. That was 30% up on the previous year.

Mini hit 285,000 compared with 235,000 the year before. It was greatly helped by the expansion of the variety of models. The convertible was weighing in for its first full year and the Countryman, the swollen version of the basic car, sold 89,036 compared with 14,337 a year earlier. BMW brand rose 8.5% to 858,383.


The Daimler share price says it all: all is not well according to those whose job it is to critique the strategy. The company is the most exposed of the vehicle makers to the truck cycle and has not made a good fist of previous recessions. Profit margins have been persistently weak relative to peers.

The consequence of all that worry is to query the strength of the current management. One analyst did not under-club it when asked for an opinion on leadership: “Daimler underperformed its German peers a little in 2009; it underperformed significantly in 2010; it has underperformed catastrophically in 2011.”

Mercedes does not manage to make the same margins as Audi or BMW and consequently fails to generate cash for investment.

But the very same investors who sold the stock because of the structural failings are poised to buy back the shares because they are now cheap. The truck market could turn quite suddenly. Profit could swing back and Mercedes could be about to fill some of the many product gaps that it has allowed to develop.

Car sales now are 1.61 million and those cars go to: Western Europe, 24%; RoW 21%; Germany 21%; US 18% and China 16%.

Next up: Renault

€m 2010 2011
Sales 126875 159337
Units (m) 7.3 8.3
Operating profit 7141 11271
Profit before tax 8994 18926
Net cash flow 1112 4835
Return on sales before tax % 11.9 7.1
Automotive RoI after tax % 17.7 13.5
€m 2010 2011
Units 1461166 1668982
Sales revenue 60477 68821
Profit before tax 4853 7383
Operating cash flow 8149 7077
Return on sales before tax 8.5% 10.7%
€bn Euros 2010 2011
Units car, van and HGV (m) 1.5 1.6
Revenue 97.8 106.5
Earnings before interest and tax 7.2 9
Net profit 4.7 6
Earnings per share (Euros) 4.3 5.3