Europe uncertainty forces VW to shorten time period for investment plan
FRANKFURT (Bloomberg) -- Volkswagen Group will spend 50.2 billion euros ($64.3 billion) in its automotive division over the next three years, shortening its investment calendar from the usual five years as market uncertainty in Europe makes long-term planning more difficult.
The supervisory board today approved the funding for plants, vehicles and r&d through 2015, the Wolfsburg-based company said in a statement.
VW's Chinese joint ventures, which are not consolidated, will invest another 9.8 billion euros during that time period.
"There are a number of uncertainties globally," said Juergen Pieper, a Frankfurt-based Bankhaus Metzler analyst. "They may want a certain degree of flexibility, more than in the past, because there is room for quite dramatic changes in the market conditions."
VW, which has added Porsche sports cars and Ducati motorcycles to build a stable of 12 brands, has offset its 0.6 percent 10-month decline in European deliveries with 20 percent growth in China. The European auto market is headed for a 17-year low in 2012, according to the auto industry group ACEA, which estimates 30 percent of the region's production capacity is unused.
While usually laying out five-year plans, the crisis that hit the European car market in 2009 also prompted VW to plan a three-year investment timetable as forecasting became more difficult.
PSA/Peugeot-Citroen, Europe's second-biggest carmaker after VW Group, is cutting 8,000 jobs to reduce spending. PSA in the last year has been burning through 200 million euros a month in cash reserves.
The Paris-based company is more dependent on Europe than VW, with the region accounting for 64 percent of its sales in the nine months through September, compared with 42 percent for its German counterpart.
After introducing a new version of its best-selling Golf hatchback in September, VW is planning a further 40 models based on the same framework at brands such as Seat and Skoda in order to cut costs. The shared architecture, known internally as MQB, should cut production costs by 20 percent, manufacturing time by 30 percent and one-time expenses by 20 percent, VW said in August.
VW plans to invest 24.7 billion euros in new models for its brands, which also include premium automaker Audi, the only VW Group marque whose sales have grown in Europe this year, Spanish subsidiary Seat and Czech Republic-based Skoda.
"Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals," VW Group CEO Martin Winterkorn said in the statement today.
VW in China is building plants in Ningbo and Yizheng with its joint venture partner SAIC Motor Corp., adding to factories already operating in Nanjing and Shanghai.
It also has production facilities run jointly with China's FAW Group Corp. in Changchun and Chengdu, while building another in Foshan and an assembly plant in Xinjiang. China is VW's biggest market.
Volkswagen's global sales ranked behind General Motors and Toyota in the first nine months. The German automaker aims to overtake the two companies by 2018.
Volkswagen Group strengthens competitiveness and safeguards future with continued high investment levels
• €50 billion for new models, environmentally friendly technologies and production facilities in the coming three years
• CEO Winterkorn: "We are investing more than ever before to reach our long-term goals."
Wolfsburg, November 23, 2012 – The Volkswagen Group will invest €50.2 billion in its Automotive Division in the coming three years. This is the result of the Group's investment planning for 2013 to 2015 discussed by the Supervisory Board of Volkswagen Aktiengesellschaft at its meeting on Friday. For the first time, the planning also includes the newly consolidated MAN and Porsche brands. "Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals", said Prof. Dr. Martin Winterkorn, Chairman of Volkswagen Aktiengesellschaft's Board of Management in Wolfsburg. "This investment is the key to the Volkswagen Group's innovation and technology leadership. It enables us to further strengthen our competitive position and ensure that we are fit for the future."
Investments in property, plant and equipment will account for €39.2 billion. More than half of this figure (60 percent) will be invested in Germany. "In this way, we are laying the foundations to ensure that our 27 German production facilities remain at the forefront of innovation and international competitiveness", said Winterkorn, reiterating that: "At Volkswagen, we are committed to Germany as an industrial location." The ratio of investments in property, plant and equipment (capex) to sales revenue will be at a competitive level of between six and seven percent in the period from 2013 to 2015.
Alongside investments in property, plant and equipment, the plans also include capitalized development costs of €10.6 billion. By building new production facilities, introducing new models and developing alternative drives, as well as with its modular toolkits, Volkswagen is laying the foundations for profitable, sustainable growth.
According to Group Works Council Chairman Bernd Osterloh, "Continued high levels of investment strengthen the Group's ability to face the challenges of the future – both in terms of products and production processes. The investment planning agreed upon also represents a clear commitment to securing jobs and employment at Volkswagen, particularly in light of the difficult conditions seen in the automotive industry." Osterloh says that sustainability and new technologies such as hybrid technology are likewise a clear emphasis in the investment planning. "We are also investing in securing our proven flexible production network between plants. This enables flexible production of different volumes and products at our locations to meet market requirements", added Osterloh.
At €24.7 billion (roughly 63 percent), the Group will spend a large proportion of the total amount to be invested in property, plant and equipment in the Automotive Division on modernizing and extending the product range for all its brands. The main focus will be on new vehicles, derivatives and successor models in almost all vehicle classes, which will be based on the modular toolkit technology and related components. This includes a new generation of MAN trucks. This will allow the Volkswagen Group to systematically continue its model rollout with a view to tapping new markets and segments. In the area of powertrain production, new generations of engines will be launched offering additional enhancements to performance, fuel consumption and emission levels. In particular, the Group will continue to press ahead with the development of hybrid and electric motors.
In addition, the Company will make cross-product investments of €14.5 billion over the next three years. This includes investments to expand capacity, such as a new vehicle production facility for Audi in Mexico, the expansion of Porsche's Leipzig plant with the new Macan model in the SUV segment, as well as increased production of automatic gearboxes. Other investment focuses include changes to the press shops, paintshops and assembly facilities as a result of the Company's high quality targets and the continuous improvement of its production processes. Investments outside production are mainly planned for the areas of development, quality assurance, sales, genuine parts supply and information technology.
Over two-thirds of the €50.2 billion investment program will continue to flow into increasingly efficient vehicles, drives and technologies, as well as environmentally friendly production in the period up to 2015.
The joint ventures in China are not consolidated and are therefore not included in the above figures. These companies will invest a total of €9.8 billion in new production facilities and products in the period from 2013 to 2015. These initiatives will be financed from the joint ventures' own funds.Contact Automotive News