With rivals Toyota and Hyundai making margins of over eight per cent with their mainstream cars, the mighty VW brand is, by comparison, in trouble.
According to industry reports, Volkswagen CEO Martin Winterkorn is looking at cost savings of £4bn per year from 2017. These plans could see a number of ‘low profit’ models simply chopped. For example, the Eos (7651 sales last year) and Scirocco (23,400 sales) could be axed.
The Up city car family will also come under scrutiny, because its expensively engineered NSF platform is shifting less than 200,000 units per year in VW, Skoda and Seat guises.
The next two years will be a whirlwind of activity at the wider VW Group as it struggles to rationalise product development, production and production costs. It is clearly in no position to attempt any kind of further mergers or acquisitions.
It’s a pity, because it is clear that the plan to create the new Auto Union could have worked. According to the auto analysts at ISI in London, VW’s production in 2020 should hit 11.8m units. With Fiat-Chrysler rolled into VW’s production system (a tall order by 2020, says ISI), production would have hit 15.84m.
The logic of VW’s strategists ran like this: the merger between Fiat and Chrysler is about to be rubber-stamped, ahead of a massive injection of cash to develop new models, including a range of rear-drive Alfa Romeos as well as new Fiats and Jeep models.
So, rather than see huge amounts invested in new Fiat-Chrysler products with no certainty of a profitable outcome towards the end of the decade, the logic went, FCA shareholders could cash in by selling up now to VW.
The VW strategists also figured that the Agnelli family – which still holds a 30 per cent stake in Fiat – as well as other FCA shareholders could be convinced to sell up now. The Agnellis would almost certainly retain the Ferrari and Maserati brands, while happily letting go of the mass-market brands.
There would have been obstacles, though. The biggest would have been the huge time and effort required on the part of the management team to merge the two sides. The VW Group already produces around 65 model lines across its 12 brands. Integrating Fiat-Chrysler would add another five brands and perhaps another 25 model lines.
Fiat’s successful South American operation would have to have been sold off (probably to a Chinese buyer). Fiat is currently the number one brand and VW number two in that market.
What’s left of Italy’s car industry would also have been hit, because a future Alfa Romeo family would have been built in VW Group factories. The Seat brand, which has struggled to prosper, would probably have been wound down or sold.
Coming back to the here and now, the VW Group could yet pip Toyota to the title of biggest car maker in the world (it’s ahead of General Motors in the first half of this year, shifting 4.97m units against GM’s 4.92m).
But it might achieve this while relying on two of its premium brands – Audi and Porsche – for the majority of its profits and with its core brand making dangerously slim margins.
Volkswagen may have started the year with a plan to become the clear global leader in car making through the Auto Union mega-merger, but it is now going to spend the next few years working flat out to save its own skin.