VOLKSWAGEN has had quite a week. On Monday its chief executive Martin
Winterkorn arrived in Geneva for the annual motor show, hotfoot from
Stockholm where he had concluded a $4.3 billion (£2.1 billion) deal to take
a majority share in Scania, the Swedish truck maker.
As he prepared his speech for an invitation-only show preview he learnt that
Volkswagen would itself be taken over – by Porsche, the sports car company
that already owned 31% of Volkswagen. That morning, a special meeting of the
Porsche supervisory board had given its chief executive, Wendelin Wiedeking,
the go-ahead to buy a majority share in Germany’s largest motor business.
So when Winterkorn said that Volkswagen had “lots of interesting things for
the future”, he was looking beyond the new models on display - from
fuel-sipping Skodas and Seats to sporty Audis, gas-guzzling Bentleys,
Lamborghinis and Bugattis.
He revealed that the last year was the best in the group’s history. It made
6.2m vehicles and had record earnings of €6.5 billion. Detailed financial
results will be released next week and are likely to please shareholders.
Wiedeking was notable for his absence in Geneva but the man who is the direct
link between Volkswagen and Porsche was there. Ferdinand Piech, previously
Volkswagen chief executive and now chairman of its supervisory board, is a
leading shareholder in Porsche, which is controlled by the Porsche and Piech
families. He and Wiedeking have a difficult relationship but Winterkorn was
Piech’s personal choice for the top job at Volkswagen. Winterkorn may need
Piech as an ally in the months to come because Wiedeking has consistently
said that he foresees changes in the way Volkswagen is run.
Winterkorn seemed relaxed about the prospect of working under Porsche
ownership. He told The Sunday Times: “We have known for some time that
Porsche would take a more than 50% share. I don’t think it will really
affect us operationally. Porsche SE (the new holding company) will hold the
shares so we will become, in effect, a family company. Look at BMW - which
is controlled by the Quandt family - that’s not so bad.”
Porsche could not make its big move on Volkswagen until the repeal of the
so-called Volkswagen Law that shielded the company from takeover bids. The
European Court of Justice proclaimed it illegal in October. There is now a
call from the German unions for a new version of the law to safeguard jobs
and factories in Germany. This would give a power of veto to the state of
Lower Saxony, a 20% shareholder in Volkswagen. Winterkorn said: “We can live
with the legislation that is being discussed.” Porsche evidently agrees with
him.
Most Volkswagen and Audi cars are made in Germany and so the company is at a
disadvantage to some rivals that have set up in other parts of eastern
Europe, where labour is much cheaper. This could hold back Winterkorn’s
ambition for Volkswagen to overtake Toyota as the world’s leading car maker.
He is aiming for annual production of 10m vehicles by 2010.
To those who suggest that closing a 3m vehicle gap (Toyota produced 9.4m last
year) is a very tall order, Winterkorn explains that, in 2006, the number of
conventional passenger cars made by Volkswagen and Toyota was fairly similar
– 5.2m for Volkswagen and 5.5m for Toyota – and that the difference is made
up by 4x4s, “people carriers” and light trucks. Volkswagen only recently
introduced a full range of these multi-purpose vehicles. They will play an
important part in its future growth.
In parts of the market, Volkswagen’s Audi and Skoda brands are growing fast.
Audi’s target is to be the No 1 premium brand, selling 1.5m cars a year by
2015, while Skoda, favourably placed in the Czech Republic, is on track for
annual production of 1m by 2012.
Russia, India and China are the key territories for sales expansion but
Volkswagen has another problem to fix – its poor performance in America. The
euro-dollar exchange rate has made it tough, perhaps impossible, to profit
from selling the cheaper cars of the Volkswagen range in America. Winterkorn
concluded that it should develop simpler models that can be sold at the low
prices that Americans expect and that it should open a factory in the United
States.
Volkswagen has a plant in Mexico that supplies America and Europe but
uncertainty about the future of Nafta (the North American Free Trade
Agreement) has led Winterkorn to prefer a US site. A decision on the
factory’s location will be made this year. The new American models to
replace the Jetta and Passat may also be made and sold in China. For the
rest of the world, and all its other main-stream brands, Volkswagen plans
three vehicle “architectures”, each one sufficiently versatile for a wide
range of car sizes and types.
One of these, codenamed MLB, has already been introduced with the new Audi A4
and will extend up to the big Audi Q7 4x4 and Volkswagen Phaeton limousine.
The others are for smaller cars - conventional front-wheel drive for the
Golf and its many relatives, and rear-engined for the cheapest and most
economical models from Seat, Skoda and Volkswagen. By 2011, 95% of the
group’s products will be based on these three platforms.
Scania, the heavy-truck maker, has become the ninth brand of the Volkswagen
group but it cannot join this part of the corporate plan. However, links can
be made with Volkswagen Commercial Vehicles and perhaps MAN, where it has a
substantial minority shareholding. Winterkorn is confident of synergies
between Scania, which will continue to be based in Sweden, and Volkswagen’s
engineering and manufacturing centre at Wolfsburg, north Germany.
He gave some examples: “Volkswagen’s experience with lighter materials could
be useful for trucks. We could reduce the cost of developing electronics -
which now account for more than 20% of the cost of the vehicle. And Scania
could benefit from Volkswagen’s buying power for raw materials.”
Winterkorn can speak with confidence. Now 60, he trained as a physicist and
was responsible for engineering and product development in the Volkswagen
group before being appointed to the top job in January last year. Today he
is chairman of the management board of Volkswagen and is in charge of the
Volkswagen brand and research and development for the whole group.
“The Volkswagen brand is the heart of our group and you need a powerful person
to control 18,000 engineers. And we know from experience that you cannot
have two strong guys at the top at Wolfsburg,” he said.
Porsche’s Wiedeking might disagree with that. Last week was the start of what
may be a different future for Volkswagen.
