Marque reveals cost-cutting

The Volkswagen Group has unveiled measures in its bid to save more than five billion euros – or about NZ$7.15b. Some of the savings may come from a decision not to replace the three-door Polo when the next-generation model comes because of falling demand for sub-compact hatchbacks. The group will also stop making its Eos convertible and is slashing expensive in-vehicle equipment, which could cut costs by more than one billion euros in 2014, says Martin Winterkorn, chief executive officer. It’s the first time the marque has given numerical evidence of how its cost-cutting programme, announced last July, is progressing. The company says the programme, which should be finished by 2017, should ensure the company achieves an operating profit margin of at least six per cent. Last year, it only managed 2.5 per cent, which was down from 2.9 per cent in 2013. Its operating profits fell by 14 per cent to 2.48 billion euros in 2014 even though sales nudged up 0.4 per cent to 99.8 billion euros. The marque hopes to reduce reliance on its Audi and Porsche divisions for profit. After years of pushing for growth in a bid to surpass Toyota, the group has shifted to profitability while boosting investment to upgrade factories and develop technology for self-driving and electric vehicles. As Audi increases spending on extra manufacturing and new models to try to catch up with BMW, last year its profits margin fell to 9.6 per cent from 10.1 per cent. Return on sales this year will be in a range of eight to 10 per cent. Porsche’s profit margins narrowed to 15.8 from 18 per cent after it rolled out the Macan compact SUV.

Boost for sales in China

Winterkorn emphasises underlying profitability is higher than its results suggest because its share of profits from two Chinese joint ventures aren’t included in its overall figures. As a group, VW earned the equivalent of 5.2 billion euros in China last year in addition to the 12.7 billion earned by the group excluding that country. “That would give us a theoretical operating profit, including the joint ventures, of almost 18 billion euros,” he says. “That puts us among the best in our industry.” Volkswagen aims to increase volumes, sales revenue and operating profit this year, and forecasts an operating margin of six to seven per cent in its core passenger-car business. The group, which sold a record 10.1 million units last year, expects to “moderately” increase global deliveries in 2015 backed by 50 new or revamped models. These include VW’s Touran compact minivan, Skoda’s Superb sedan and Audi’s Q7 SUV.