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VW: Lead push in Mexico to help America business
Source: Bloomberg News |
January 23, 2013, Wednesday
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VOLKSWAGEN AG Chief Executive Officer Martin Winterkorn cut short his visit to the North American International Auto Show in frigid Detroit last week to head to balmy Mexico. He didn't go for the weather.
The executive's whirlwind North American tour was another step in his strategy to make VW the world's largest automaker by 2018. Fresh from the Detroit unveiling of a sport-utility vehicle aimed at challenging Ford Motor Co's Explorer, Winterkorn opened a US$550 million factory in Silao, about 200 miles northwest of Mexico City, at a ceremony attended by President Enrique Pena Nieto.
"With this new plant, we are driving our ambitious North American offensive forward," Winterkorn said in Mexico at the factory opening. "Silao is thus also a strong symbol of our uninterrupted growth trajectory and the group's continuing internationalization."
The facility, which will supply VW's two North American assembly plants with as many as 330,000 engines a year, marks the Wolfsburg-based manufacturer's 100th production site and helps make it the most global carmaker in the world. VW this year will have 77 percent of its production capacity outside its home country, nipping past General Motors Co's 76 percent and ahead of Toyota Motor Corp's 59 percent, according to consultancy Oliver Wyman.
European decline
The fact that the plant was opened in North America underscores VW's ambition to take on GM more directly in the Detroit-based automaker's home market. The German manufacturer plans to spend US$5 billion over the next three years to expand in the region. Growth there is critical for VW to offset a demand decline in Europe that threatens to halt its progress.
"Volkswagen has a lot of catching up to do in the US," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. "They won't reach their 2018 goals if they don't get stronger" in North America.
Volkswagen's global sales are forecast to edge 0.7 percent higher to 9.15 million vehicles in 2013, its slowest growth pace since the financial crunch in 2009, according to IHS Automotive. Growth in the US and China will be needed to make up for a 5.8 percent drop in European deliveries as German demand stalls and the Polo subcompact ages. The slowdown could catch some VW investors off guard.
"Given what the stock gain implies in growth and profitability, VW needs to keep filling the pipeline," said Eerik Budarz, a Frankfurt-based analyst with Westend Brokers. "Otherwise, investors are going to take profits. When you get used to success, the risk of disappointment grows."
VW's share price has more than doubled since 2009, valuing the company at 78.4 billion euros (US$104 billion). The stock surge was underpinned by a 44 percent climb in deliveries since then to 9.07 million vehicles last year. After carving out leading positions in Europe, China and Brazil, Volkswagen has disappointed in the US, where its 4 percent market share pales compared with its control of about 15 percent of global sales.
That's starting to change. Demand for Audi and VW-brand vehicles in 2012 surged 31 percent to 580,200 cars, beating the previous high from 1970 when the Beetle and Microbus helped define American culture. This year, VW aims to report a profit in the US, its first there since 2002.
Pragmatic Passat
The new face of VW in North America is the pragmatic Passat. The mid-sized sedan, built in a new US$1 billion factory in Tennessee, is bigger and cheaper than the European version. The Passat and the Mexican-made Jetta combined to account for two-thirds of VW sales in the US in 2012, the first full year for the US-made sedan.
"Volkswagen was always a unique buy, different from the mainstream," said Michael Morais, chief operating officer of Open Road Auto Group, which operates 15 showrooms in New York and New Jersey, including three VW stores. Now, they're combining bread-and-butter models with "very enthusiastic products that inspire," he said.
VW's push into the mass market will take another step when it rolls out a production version of the Crossblue concept, which drew a crowd of 25 TV and video crews at its Detroit debut. The seven-seater would challenge the Ford Explorer, Chrysler Group LLC's Jeep Grand Cherokee and Toyota's Highlander as a sportier family-car alternative to a minivan.
SUV sales account for 29 percent of the US market, the biggest segment after sedans. VW forecasts SUV demand to grow more than 20 percent by 2018, outpacing all other niches. In addition to the Crossblue, VW premiered the Taigun compact concept at the Sao Paulo Motor Show in October. The two models would double VW's SUV lineup, which currently consists of the upscale Touareg and the smaller Tiguan.
To check VW's American growth plans, GM will introduce 13 new Chevrolet models in the US this year and will refresh 70 percent of its US lineup over a year and a half, including the full-sized Impala sedan and the Corvette sports car.
GM intends to grow faster than competitors in the US after its market share hit an 88-year low in 2012.
Heated competition
Toyota, which regained the global sales crown last year, will look to defend that lead in 2013 when it updates mass-market models like the Corolla, which competes with VW's best-selling Jetta in the US.
Those efforts may do little to slow VW's progress. The carmaker is forecast to boost its US market share to 4.3 percent this year, even as GM and Toyota stagnate at 17.9 percent and 14.4 percent, respectively, according to a survey of five analysts compiled by Bloomberg.
"Volkswagen is like a tanker," said Frank Biller, an analyst with LBBW in Stuttgart, Germany.
"Once heading in one direction, it can hardly be stopped. The 2018 strategy has proven to be the right course," he said.
The executive's whirlwind North American tour was another step in his strategy to make VW the world's largest automaker by 2018. Fresh from the Detroit unveiling of a sport-utility vehicle aimed at challenging Ford Motor Co's Explorer, Winterkorn opened a US$550 million factory in Silao, about 200 miles northwest of Mexico City, at a ceremony attended by President Enrique Pena Nieto.
"With this new plant, we are driving our ambitious North American offensive forward," Winterkorn said in Mexico at the factory opening. "Silao is thus also a strong symbol of our uninterrupted growth trajectory and the group's continuing internationalization."
The facility, which will supply VW's two North American assembly plants with as many as 330,000 engines a year, marks the Wolfsburg-based manufacturer's 100th production site and helps make it the most global carmaker in the world. VW this year will have 77 percent of its production capacity outside its home country, nipping past General Motors Co's 76 percent and ahead of Toyota Motor Corp's 59 percent, according to consultancy Oliver Wyman.
European decline
The fact that the plant was opened in North America underscores VW's ambition to take on GM more directly in the Detroit-based automaker's home market. The German manufacturer plans to spend US$5 billion over the next three years to expand in the region. Growth there is critical for VW to offset a demand decline in Europe that threatens to halt its progress.
"Volkswagen has a lot of catching up to do in the US," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. "They won't reach their 2018 goals if they don't get stronger" in North America.
Volkswagen's global sales are forecast to edge 0.7 percent higher to 9.15 million vehicles in 2013, its slowest growth pace since the financial crunch in 2009, according to IHS Automotive. Growth in the US and China will be needed to make up for a 5.8 percent drop in European deliveries as German demand stalls and the Polo subcompact ages. The slowdown could catch some VW investors off guard.
"Given what the stock gain implies in growth and profitability, VW needs to keep filling the pipeline," said Eerik Budarz, a Frankfurt-based analyst with Westend Brokers. "Otherwise, investors are going to take profits. When you get used to success, the risk of disappointment grows."
VW's share price has more than doubled since 2009, valuing the company at 78.4 billion euros (US$104 billion). The stock surge was underpinned by a 44 percent climb in deliveries since then to 9.07 million vehicles last year. After carving out leading positions in Europe, China and Brazil, Volkswagen has disappointed in the US, where its 4 percent market share pales compared with its control of about 15 percent of global sales.
That's starting to change. Demand for Audi and VW-brand vehicles in 2012 surged 31 percent to 580,200 cars, beating the previous high from 1970 when the Beetle and Microbus helped define American culture. This year, VW aims to report a profit in the US, its first there since 2002.
Pragmatic Passat
The new face of VW in North America is the pragmatic Passat. The mid-sized sedan, built in a new US$1 billion factory in Tennessee, is bigger and cheaper than the European version. The Passat and the Mexican-made Jetta combined to account for two-thirds of VW sales in the US in 2012, the first full year for the US-made sedan.
"Volkswagen was always a unique buy, different from the mainstream," said Michael Morais, chief operating officer of Open Road Auto Group, which operates 15 showrooms in New York and New Jersey, including three VW stores. Now, they're combining bread-and-butter models with "very enthusiastic products that inspire," he said.
VW's push into the mass market will take another step when it rolls out a production version of the Crossblue concept, which drew a crowd of 25 TV and video crews at its Detroit debut. The seven-seater would challenge the Ford Explorer, Chrysler Group LLC's Jeep Grand Cherokee and Toyota's Highlander as a sportier family-car alternative to a minivan.
SUV sales account for 29 percent of the US market, the biggest segment after sedans. VW forecasts SUV demand to grow more than 20 percent by 2018, outpacing all other niches. In addition to the Crossblue, VW premiered the Taigun compact concept at the Sao Paulo Motor Show in October. The two models would double VW's SUV lineup, which currently consists of the upscale Touareg and the smaller Tiguan.
To check VW's American growth plans, GM will introduce 13 new Chevrolet models in the US this year and will refresh 70 percent of its US lineup over a year and a half, including the full-sized Impala sedan and the Corvette sports car.
GM intends to grow faster than competitors in the US after its market share hit an 88-year low in 2012.
Heated competition
Toyota, which regained the global sales crown last year, will look to defend that lead in 2013 when it updates mass-market models like the Corolla, which competes with VW's best-selling Jetta in the US.
Those efforts may do little to slow VW's progress. The carmaker is forecast to boost its US market share to 4.3 percent this year, even as GM and Toyota stagnate at 17.9 percent and 14.4 percent, respectively, according to a survey of five analysts compiled by Bloomberg.
"Volkswagen is like a tanker," said Frank Biller, an analyst with LBBW in Stuttgart, Germany.
"Once heading in one direction, it can hardly be stopped. The 2018 strategy has proven to be the right course," he said.
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