Volkswagen chairman Bernd Pischetsrieder claims the group has made substantial progress “towards becoming a powerful multi-brand group” in spite of unsatisfactory earnings for 2003.
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The annual press conference in Wolfsburg on Tuesday was told that earnings were hit by negative effects such as the strong euro, weak economic conditions and the resulting pressure on margins and the chairman outlined a number of corrective measures, including a 3.5% workforce reduction (about 5,000 people).
Profit before tax was confirmed at the €1.5 billion (€4.0 billion in 2002) reported on February 18, profit after tax was €1.1 billion (€2.6 billion) and the board proposes a dividend of €1.05 (€1.30) per ordinary share. Sales revenue reached €87.2 billion (€86.9 billion).
Goldman Sachs equities analyst Keith Hayes told just-auto: “These numbers have been well flagged and indicate the serious problems being faced by the company – the numbers are suitably downbeat.
“Going out, attention will focus particularly on the company’s ‘ForMotion’ restructuring programme and its credibility, especially with respect to the thorny issue of Volkswagen’s excessive capital spending.”
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By GlobalDataPischetsrieder said the target of covering 85% of the market had moved closer thanks to a new model strategy begun two years ago. Volkswagen intended to be present in all relevant (lucrative) niches and the reorganisation of sales operations introduced during the 2003 financial year to give more responsibility for volumes and earnings to the brands was proving successful.
Despite tough competitive conditions in 2003, vehicle deliveries once again topped the five million mark, and the group slightly increased its world market share – in Germany, the share actually increased.
“Moreover, we have successfully defended our market leadership in China,” Pischetsrieder said.
The chairman said there were no signs of economic recovery yet and the whole vehicle industry was exposed to the strains of the markets and high exchange rates.
The VW group was responding to these developments with the ForMotion programme, doubling its efforts to safeguard earnings and planning to achieve additional savings of some €2 billion by the end of 2005. Pischetsrieder noted that savings already planned for the period also totalled €2 billion.
ForMotion was intended to increase sales revenue, raise earnings, cut costs and further reduce tied-up capital in the group.
“We have already been working on key elements of the programme for two years but now we are noticeably stepping up the pace and adding measures,” Pischetsrieder said.
Pischetsrieder told the press conference that a board member would act as promoter for each of seven themes, assisted by a team responsible for implementing it. The themes are: product costs; one-off expenditure; overheads/process optimisation; sales performance enhancement; financial services earnings; commercial vehicles turnaround and increasing earnings at foreign subsidiaries.
Everything aspect of the group’s operations will be reviewed, Pischetsrieder said.
Product costs measures are expected to make the highest percentage contribution to improve earnings and there will be a noticeable increase in the volume of identical parts fitted in different model ranges, reducing unit costs without affecting high quality standards.
Pischetsrieder also described measures to minimise one-off expenditure as an important element.
“We are developing the platform strategy into a modular strategy even faster than planned. We will devote even more energy to avoiding the duplication of work in our group and thus deploying our resources more efficiently.”
Another group-wide goal is to reduce overheads, resulting in a workforce reduction of 3.5% through early retirement in Germany and natural attrition. Pischestrieder insisted that this had nothing to do with a freeze on further recruitment.
As at other big car makers, earnings from financial services “had a stabilising effect on overall group earnings in 2003”, the chairman said.
“In the present economic climate, this business line is more attractive than ever,” added Pischetsrieder.
