VW Group boss Martin Winterkorn's position looks fragile as margins and sales slip at the VW brand

Volkswagen Group’s leadership troubles have gone global as the position of group CEO Martin Winterkorn looks ever more perilous.

Last weekend VW Supervisory board Chairman Ferdinand Piech told the press that he was ‘not aligned with Winterkorn’. 

Piech’s huge dominance over the running of the VW Group meant this relatively benign comment triggered a storm of speculation about the leadership of the VW Group, which has rattled investors, unions and local government.

The Qatar Investment Authority – which has significant investment in the VW Group – was quoted in the German press criticizing supervisory board chairman Ferdinand Piech.

Handelsblatt said that a QIA source believed Piech should not have raised the issue of the leadership of VW before being able to ‘present an alternative’ that had the backing of the supervisory board.

The latest news reports suggest that a group from the supervisory board, the VW Works Council boss and the Prime Minister of Lower Saxony will all meet on Friday (17th April) to discuss the leadership crisis triggered by Piech's comments.

Winterkorn – who has spent most of his career working in harmony with Piech – was expected to retire in 2016 and has been credited with steering the multi-brand group to huge success.

On paper, Winterkorn’s tenure since being installed in 2007 has been one of significant success, driving VW Group global sales up from 5.72m in 2006 to 10.14m in 2014. Profits are also at an all-time high and up in 2014 more than 21 percent on 2013.

However, when you dig into the breakdown of performance by the various brands, it is clear that the VW brand itself is not on the best shape. With margins down at 2.5 per cent in 2014, it made an operating profit of 2.5bn Euros on sales of 6.16m vehicles.

In stark contrast Porsche also made 2.78bn Euros in profit (a 15.8 per cent margin) on sales of just 203,000 cars. Certainly, Porsche is in the super-premium league, but Audi made an operating profit of 5.15bn Euros (a 9.8 per cent margin) on sales of 1.8m cars.

Clearly the VW Group is prospering on the back of Porsche and Audi and the VW brand itself is being weighed down by comparatively high costs.

The rollout of the MQB platform and MQB factory system across the globe is also immensely costly and is not guaranteed to transform VW brand profitability.

Autocar has also spoken to senior industry figures at rival companies who claim to be surprised by the nature of the high-end (and costly) engineering in the Golf platform.

Moreover, under Winterkorn the VW brand in the US new car market has stumbled badly. Despite a huge push to get back into serious contention in the US, sales slipped back in 2014 and VW admits that it has been badly wrong footed by a lack of SUV and Crossover models.

Heinz-Jacob Neusser revealed VW’s plans for at least five US-centric SUV models to Autocar at the recent New York auto show, but the full line-up is years away and VW’s position in North America will probably take three years to improve noticeably.

VW’s long-trailed plans for a super-budget car – intended primarily for China – also seemed to have run aground under Winterkorn. After failing to devise a concept that both met cost and engineering targets, Dr Neusser told Autocar at New York that the project had now been re-cast.

He said that the new concept is for a budget platform that could spawn both a saloon and a crossover with the “maximum number of shared parts”. However, this new model is still at least three years from the showroom.

All of this would have probably been enough for Piech to pull the rug out from under Winterkorn. But the financial results for the first quarter of 2015 were probably the tipping point.

According to analysts at Evercore ISI, sales of VW brand cars were down by 1.3 percent globally and down 1.8 percent when China is excluded. Even in a rising Western European market which was up by 7.5 per cent, VW brand sales rose by just 1.9 per cent. Profits margins in the first three months of 2015 are thought to have slipped back to 2.1 per cent.

It seems likely that the latter figures were the final straw for Piech, who now looks set to trigger a significant overhaul of VW Group management, with special emphasis on turning around the VW brand, which is simply spending too much money on each car it sells.

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Comments
23

15 April 2015
The VAG cars are all starting to look like clones within the brands and even across the brands. They trade on the badge, a bit like BMW and not how attractive a design the cars are

15 April 2015
opelvaux wrote:

The VAG cars are all starting to look like clones within the brands and even across the brands. They trade on the badge, a bit like BMW and not how attractive a design the cars are

Skoda is in good shape with models like the Superb, Yeti and Fabia, SEAT certainly doesn't sell on brand image but neither are it's unique offerings particularly VW-ified and as mentioned in the article most of the more expensive cars are doing fine.

The VW branded models are perhaps slightly going off the pace in the UK but you only have to look at Golf Sales to know they're still popular.

15 April 2015
Why would you buy a Volkswagen when you can buy a Skoda that looks very similar, uses the same powertrains, features the same infotainment system, is fitted with the same technology but costs less to buy and run? Skoda's (and to a lesser extent SEAT's) sales successes seem to be increasing at Volkswagen's expense. And VW have undoubtedly underestimated the U.S. market, too, and the worldwide desire for SUVs.

15 April 2015
Dark Isle wrote:

Why would you buy a Volkswagen when you can buy a Skoda that looks very similar, uses the same powertrains, features the same infotainment system, is fitted with the same technology but costs less to buy and run?

If all the running gear is the same then how exactly are they cheaper to run?

16 April 2015
EndlessWaves wrote:
Dark Isle wrote:

Why would you buy a Volkswagen when you can buy a Skoda that looks very similar, uses the same powertrains, features the same infotainment system, is fitted with the same technology but costs less to buy and run?

If all the running gear is the same then how exactly are they cheaper to run?

Because the purchase price, servicing and spares are cheaper.

16 April 2015
Earlier today as I joined the motorway I saw 3 Volkswagen Golfs catching up with me in the fast lane. As I was behind a slow car in the left lane I waited for them to pass before I pulled into the fast lane.
Not a word of lie. Not one of them was a Golf. The first car was a Passat All-Track, the second was a Tiguan and the third was a Polo. Does this genetic in-breeding has something to do with this relative failure of the VW brand?

16 April 2015
fadyady wrote:

Earlier today as I joined the motorway I saw 3 Volkswagen Golfs catching up with me in the fast lane. As I was behind a slow car in the left lane I waited for them to pass before I pulled into the fast lane.
Not a word of lie. Not one of them was a Golf. The first car was a Passat All-Track, the second was a Tiguan and the third was a Polo. Does this genetic in-breeding has something to do with this relative failure of the VW brand?

No, if a car enthusiast can't tell the difference between a Tiguan and a Golf, even at speed, then get yourself off to spec-savers.
In the show room I think most people could tell the difference between a Passat All-Track and Golf too!

 

Hydrogen cars just went POP

16 April 2015
fadyady wrote:

Earlier today as I joined the motorway I saw 3 Volkswagen Golfs catching up with me in the fast lane. As I was behind a slow car in the left lane I waited for them to pass before I pulled into the fast lane.
Not a word of lie. Not one of them was a Golf. The first car was a Passat All-Track, the second was a Tiguan and the third was a Polo. Does this genetic in-breeding has something to do with this relative failure of the VW brand?

I fear the same thing is happening at Skoda with the new Fabia looking awfully like an Octavia and the new Superb not much different. As it has already happened to Audi and they, it seems, are now trying to get away from having all their cars look the same (not very successfully, I think) one would think that a supposedly clever chap like Herr Piech would relax his grip a bit and let each brand do its own thing as far as styling goes just so that the customer can tell the difference between models. Maybe it is time for him to retire rather than undermining his colleagues; never a good management style.


Enjoying a Fabia VRs - affordable performance

16 April 2015
Ferdinand Piech is arguably VW's problem, not its saviour, having lost billions on his silly pet projects. The EU could do us all a favour by invoking antitrust legislation to break up VW on the grounds of it harming consumer choice. They're awfully keen on this with respect to US companies but have turned a blind eye to certain German ones which make far too many of the same car.

A34

16 April 2015
One can take an analogy like this too far, but...
Rover = Audi (comfort)
Morris = Skoda (blue collar)
Austin = VW (white-collar)
Triumph = Seat (sportyish)
Wolseley = ?
? = Porsche / Lambo

Management perspective: lets share platforms across all these to save costs.
Consumer perspective: (yawn) lets look at a Hyundai/Kia too...

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