The Volkswagen brand is making rapid progress with the implementation of its strategy Transform 2025+ presented last November, according to brand CEO Herbert Diess.
During the current year, the brand management board expects further significant progress in all key strategic action areas and also substantial improvements in the key financial indicators following a strong first quarter.
“2016 was a pivotal year for the Volkswagen brand. It was a year of transformation. And a year that marked the start of a new phase for our company.
Diess said: “2016 was a pivotal year for the Volkswagen brand. It was a year of transformation. And a year that marked the start of a new phase for our company. We devoted immense energy to the diesel crisis. We initiated the transformation in business operations. And, we laid the groundwork for the strategic realignment of the brand. Our mission is clear: We want to make the Volkswagen brand competitive for the future. By 2025, we aim to play a leading role in the continuously changing automotive industry.”
Transform 2025+ is planned in phases: by 2020, VW intends to realign its core business and to become the global market leader in e-mobility by 2025. From 2025, the focus is to be on new mobility solutions and business models in order to shape the major transformation in the industry from a leading position.
The automaker claims “evident success has already been achieved in all fields”. It has agreed demanding targets and measures under the pact for the future concluded last autumn. These include more efficient ramp-ups, reduced working times through higher plant utilisation and improved processes.
As with Seat producing vehicles for Audi in Spain, from 2018, a “new model for a sister brand” will be produced in Wolfsburg. A fourth model for the Emden plant is in the development phase. A ‘Centre of Excellence’ at the Salzgitter components plant is now responsible for the development, procurement and quality assurance of battery cells and modules and pilot production is currently in the planning phase.
The SUV offensive, which is a key element in the product strategy, has been launched and the brand is expanding the global model range from the initial two to 19 SUVs. It has introduced three new SUVs in recent months – Atlas, Teramont and Tiguan Allspace.
Realignment in the regions
Diess said VW’s substantial restructuring programmes are starting to bear fruit: in North and South America as well as Russia, the brand has grown at an above-average pace and gained market share during the first quarter.
“It is especially gratifying to note that deliveries in the US grew by 10% and have almost reached the pre-crisis level within only one and a half years,” he noted.
Following the product lines, the regions also assumed full responsibility for their business at the beginning of the year – a key element in the brand’s endeavours to make the entire organisation nimbler and faster and to improve its performance.
“The positive effects of autonomy are already becoming apparent. The regions can make faster decisions and are closer to the market and the customer.”
Volkswagen’s electric offensive is also proceeding. The new e-Golf has a range of 300km while the ID family, shown in concept form, is based on a new electric vehicle architecture which will lay the technological and economic foundation for the majority of the group’s future electric vehicles.
Strong Q1 2017
Diess said current financial indicators show that the brand “is on the right track”. It applied a new reporting structure for the first time in Q1 2017. Previously data also included sales revenues and sales of other group brands as a result of the consolidation of multi-brand importers and retailers. In future, these sales revenues and sales will be reported at the group level together with the sales revenues of certain service companies not performing services solely for the brand.
For 2016, this would have resulted in restated sales revenue of about EUR74bn, instead of the figure of EUR106bn previously reported. The operating result would have been EUR1.6bn instead of EUR1.9bn and return on sales would have been 2.1% instead of 1.8%.
“Structural realignment makes the Volkswagen brand more transparent, allows better comparison of our financial indicators with those of our competitors and allows management to focus on the core activities of the brand,” finance chief Arno Antlitz said.
VW said it had started 2017 significantly better than the two previous years. With deliveries of about 862,000 vehicles, sales revenue reached EUR19.0bn and the operating result rose to almost EUR0.9bn. The operating return on sales improved to 4.6%. Factors which had a positive impact were volume development, price and mix effects, the reduced use of sales aids, exchange rate effects and a significant reduction in product and fixed costs.
“By exercising strict cost discipline, we succeeded in keeping our fixed costs at or around the previous year’s low level in the first quarter of 2017 despite the planned SUV offensive and despite the advance outlay required for our electric architecture and digital ecosystem,” said Antlitz.
Outlook for 2017: higher profitability
For full year 2017, VW predicts “the positive business developments recorded in the first quarter will continue”. Sales revenue is to increase by up to 10% year on year and the operating return on sales is expected to be at the upper end of the predicted forecast range of 2.5 to 3.5%.
Added Antlitz: “This means that we are on course to achieve our mid-and long-term margin targets of at least 4% by 2020 and 6% by 2025. We will examine these results targets with a critical eye and raise them the moment we consider that what we have achieved is sustainable going forward. Until such time, we will concentrate on implementing the pact for the future and our strategy Transform 2025+.”
The main focus in the current year will be on strengthening competitiveness. VW intends to increase productivity this and next year by 7.5%. Improved ramp-ups, cost discipline and the continuing product and profitability offensive in the regions will also contribute to competitive positioning. In North America, the brand plans to launch two new models each year up to 2020. The losses in this region [diesel scandal] are expected to be significantly reduced this year and the brand plans to reach break-even in 2020.
“This target date also applies to all the other regions which are currently not recording a profit,” VW said.
In South America, it will continue to implement a restructuring programme while renewing and broadening the model range.
In China, it will defend its market leadership with nine further models by 2018 with a focus on locally produced new energy vehicles.
Across all regions, around 10 new models are being launched this year. Five are new products without predecessors. By the end of 2018, seven new SUVs will be launched globally – two before the end of this year. Among these, the T-Roc will make a key contribution to the increase in volumes and earnings, VW said.
“Volkswagen is making progress with realigning the brand, as the first quarter shows. Despite significant risks, we are confident that we will be able to continue the positive development of the brand, meet our demanding schedule and also achieve our financial targets.” said Diess.
Diesel fix “proceeding to schedule”
VW said it was “making progress to schedule”. In Europe, over half of the recalled vehicles have already received a software update – nearly three quarters in Germany. Over 2.6m vehicles have been modified to date and, by the end of the year, all VW brand vehicles should have been covered.