You need to spend 45 minutes with the Volkswagen Group’s latest full-length financial press release to realise just how precarious the Volkswagen brand’s situation has become.
There are some bright spots. Between January and March this year, vehicle deliveries across the whole VW Group crept up to 2,508,000 units, a rise of 0.8% on the same period in 2015. And the VW Group now has a handy £19.8 billion in cash in the bank, a massive 25% jump on the same time last year.
But the bad news makes a much longer list. Overall sales revenue fell 3.4% (which VW blames mainly on exchange rate issues), profit margins after tax fell from 7.5% for the whole VW Group to just 6.3% and after-tax profits fell almost 20%, to £1.8bn from £2.24bn.
Despite the massive media bashing over the emissions scandal, the advantage of having a portfolio of brands is shown in the sales performance of the various marques. Audi was up by 4% to nearly 456,000 sales in the first three months of the year.
(I’m going to divert quickly to Bentley’s situation. The British brand’s sales were down an alarming 30% in the first three months of the year, from 2232 units to just 1554. Profits collapsed from £37 million to a £41m loss. The company must hope that existing Bentley buyers are not switching straight to the Bentayga SUV, because these kinds of direct substitution sales will not grow the brand significantly).
Volkswagen brand sales were down just 1.3%, but dig into the fine detail and VW is showing signs of significant stress. According to the official figures, the VW brand had a sales revenue of £19bn, but VW’s operating profit collapsed from £392m last year to just £55.7m between January and March.
That’s in stark contrast to Audi’s 526,000 global sales and £11bn revenue, which delivered operating profits of £990m. Porsche’s 55,000 sales delivered £682m profits. Even Seat - which sold just 127,000 vehicles in the first three months - made £42m profit.
Volkswagen is yet to be fully hit by the final costs of the ‘dieselgate' scandal and must expect tens of billions of dollars in fines and legal costs in the US alone. With it’s core brand in such a delicate financial position, it’s hard to see how the wider VW Group will cope with such a huge hit.
It seems to me that the VW brand simply cannot take the financial stress on its own, but can the hugely profitable Audi and Porsche brands be persuaded to also take the financial pain for the remarkably stupid decision to cheat in order to get VW diesel engines through the US's tough pollution laws?
On the surface, VW is carrying on by doing what it likes to do: investing massively in research and development and new platforms (there’s a rumour that the new MEB electric platform may be joined by another, bigger, battery-electric architecture).
It also wants to prepare for the future of connectivity and swarm intelligence (which it has done by buying the Nokia mapping division and signing a deal with MobilEye, which makes forward-facing cameras).
But the VW brand is clearly in the kind of trouble that you cannot simply engineer your way out of.