VW Is Looking To Challenge Toyota to Become One of the World’s Biggest Automakers

Report: VW aims to produce more than 10 million cars a year by 2018

By Alex Ricciuti

11.18.2007

Recent news:
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November 12, 2007 —

FRANKFURT (Reuters) — Volkswagen aims to increase production to more than 10 million cars per year by 2018 from around 6 million now, the German current affairs weekly Der Spiegel reported on Saturday.

A spokesman at Europe’s biggest carmaker declined to confirm any such output target for that time horizon but reiterated VW CEO Martin Winterkorn’s stated target of an increase to 8 million vehicles by 2010.

Winterkorn is due to unveil a 10-year strategic plan at a meeting of Volkswagen’s supervisory board on November 16, the spokesman said, confirming that part of the magazine’s report.
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There is a lot of ambition here, including it’s aim to take sales in the North American market to a million (including Audi) and grow the Audi brand into the largest premium marque globally.

I love it when automakers get all macho and spew pronouncements like this based on pure bravado and the press runs to speculate about it. VW is the biggest automaker in Europe and it should stay home and count its blessings.

The key to that kind of global growth, to 10 million cars a year, is to become a major player in the North American market. Maybe VW could in fact achieve it’s stated sales goals of a million units in the US alone. The one problem being that more than doubling sales will more than double their losses. The strong euro is killing them and there is nothing VW or anyone else can do about it.

As a business journalist, I always laugh when these automakers say that they hedge on currency. This is pure obfuscation. The only thing that “hedge” means is that they invest in euros which only mitigates their loses and not to any great degree, I suspect. What it also does is keep driving up the value of the euro which only contributes to the problem.

The only way to truly hedge is to make the cars where you sell them and that would mean a manufacturing plant in the US or Canada or a second plant in Mexico. This would require massive investments which VW is not really capable of making right now. And even at that, so many of your costs remain in your home currency and the more you try to move those costs locally, such as fully localizing your supplier base, the more investments that entails.

Also, it would be too risky.

As I have written before, the US is the big enchilada of car markets which also makes it the riskiest. It’s not like starting a subsidiary in Iceland just to see how it goes. It’s a huge market that would require massive investments. But it is also a very mature market which means you can’t bank on people running to your showrooms to buy your shiny new import. There is plenty of competition around and VW is not seen as a prestige brand in the US . It is seen only as an expensive one. This is the brand value/cost issue that they need to solve before they go anywhere.

There is this whole subculture in the US, to the point that it has become a cliche, of car enthusiasts alternatively panting in heat at European models while whining about why they can’t have them in the US. If there were some way to exploit this, I would, really. Maybe I should start importing Focus STs. But I’m pretty sure I’m not going to find too many takers for a 30,000 dollar Focus. But I shouldn’t be so hard on those folks because many other journalists and analysts make the same silly, reflexive, “Yes, why not?”, assumptions when they hear such stories.

You (VW or any other takers) can’t imitate Toyota because you do not have:

a) their Terminator-style, single-mindedness corporate culture to just keep making and selling the ultimate bland, box-store aesthetic appliances otherwise known as cars

b) the Japanese government behind you whose policy is to keep the currency as low as possible to drive exports which is the backbone of their entire economy

VW shouldn’t expect anything near 10 million units by 2018. It can increase sales if it delivers the right products to each market. Certainly they have green technologies that they can exploit and growth in Eastern Europe, Russia, China and Asia as a whole hold a lot of promise and opportunity.

But 10 million? Don’t kid yourself.

Alex Ricciuti is a freelance writer and automotive journalist based in Zurich, Switzerland. He writes frequently for Automotive News Europe.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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6 Comments

  1. I think it could happen, but I do agree that the part of the plan that has to do with the United States market is not going to happen. But they could hit their overall number through everything else overseas.

  2. I think they will only be able to increase Audi sales in America. Which is great revenue and probably profit but not that many units.

    I think the developing world sales are going to be bigger then most analysts think so there is potential for VW to sell a lot more total units over the next 11 years. But from 5.5 million to 10 is a very large jump. One other option is buying another car company.. but thats not exactly growing in the sense I think they mean.

    All and all I am a believer that the world car industry is going to consolidate further in the coming decade.

  3. anonymous, I taught of the same thing, buying another car company. As I once mentionned in a previous post on the subject. Chrysler could be the more vulnerable compared to Ford.

    Even if they miss the target of being #1 and landing to #2, it’s still a very good accomplishment.

  4. Acquisition is the only way they’re going to make that number. Since they need U.S. production, maybe they should buy a piece of Chrysler LLC, whatever they want to sell right now, whether that’s Chrysler, Dodge or Jeep.

  5. Stephane, good post.. I looked up some numbers Ford globally produced 6.2 million vehicles last year, and Chrysler produced 2.5 million.

    If someone has deep enough pockets they could buy into especially Ford take the super pain of paying a bunch of liabilities.. Then maybe they would have a heck of a global business. Because everytime I see Ford’s global sales they seem to be growing and their vehicles look good. It just seems in North America they have so many ‘legacy’ costs, like debt or pensions.

    Chrysler seems non-viable to me as an independent company.. Its not even if their cars are good or bad to me.. its how can they spend the mega bucks on R&D, to compete with say GM? I liked your thoughts of VW buying them and then selling the east european cars under some of the brands… I hadn’t thought of that before. I’d always thought about Renault/Nissan.. but your idea may make even more sense.

  6. Anonymous, I also taught of Renault-Nissan of getting Chrylser or Ford (in the case of Ford, Bearhawke, a poster on Allpar forum thinks then Ford is under the eyes of Ghosn, however some recents articles said then Ford president Alan Mullaly isn’t interested in a alliance). Got to dig a bit the archives on the subject http://www.autosavant.net/2007/10/carlos-ghosn-says-us-sales-will-lag-in.html

    VW don’t mention any plan of acquiring, however they could act under the eyes of the medias to trick Ghosn…and some of economic the analysts.

    Getting Chrysler and/or Ford will be the key to access the #1 rank or having a solid #2 rank.

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