“VW is becoming quite complex,” said Anil Valsan, director of automotive research at London-based Frost & Sullivan. “It remains to be seen to what extent VW can afford some of its brands cannibalizing each other.”
Volkswagen is losing 500 million euros ($681 million) in profit every year as VW brand customers flock to cheaper Skoda and Seat models, according to an estimate by Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen.
The unwanted crossover between Skoda and VW brand models contributed to Skoda chief Reinhard Jung losing his position to Winfried Vahland, previously head of VW's China unit, Dudenhoeffer said.
“VW's problem is they afford too many brands in respective segments and want the brands to cover large spectrums,” he said. “Skoda has done an excellent job at exploring the vast technology of VW. But they have developed a bit of a life of their own now. That hasn't escaped Winterkorn.”
CEO Martin Winterkorn intends to integrate Porsche, maker of the 911 sports car, into VW's modular strategy under Porsche CEO Matthias Mueller, VW's former chief product strategist, who takes over on Oct. 1.
Winterkorn also plans to forge a trucks alliance between Scania AB and MAN SE, and develop small cars with Suzuki Motor Corp. after buying a 19.9 percent stake.
Alfa Romeo interest
And VW isn't done with expansion yet. The German company is still interested in buying the Alfa Romeo brand from Fiat SpA, supervisory board Chairman Ferdinand Piech told reporters on the eve of the Paris Motor Show.
Ford and GM are taking the opposite tack. Ford, the second-biggest U.S. carmaker, may trim its product lineup to as few as 20 models, CEO Alan Mulally said last week.
Ford sold Volvo Cars in August after previously divesting Jaguar, Land Rover and Aston Martin. GM, preparing for an initial public offering a year after a United States government bailout, sold Saab in February and has closed its Hummer, Saturn and Pontiac units.
VW's strategy was on display yesterday as the carmaker's brands showcased their new models at a group event the night before the start of the Paris show.
“We're aware that we have set a fast pace,” Winterkorn, 63, said in an interview at the event, where VW will show a facelift of the Passat model, Audi's new A7 coupe and Bentley's Continental GT coupe. “But we still have both feet planted very firmly on the ground. We have the experience and the skill to manage a multi-brand group of this format well.”
Multi-brand groups like VW are naturally at risk of over-expanding, though VW has developed a cost-saving strategy to run its portfolio, said Juergen Meyer, who manages 1 billion euros at SEB Asset Management in Frankfurt including Porsche shares.
The extent of the group's other units encroaching on core VW brand buyers is minor, and competition within the VW group is preferable to losing customers to rivals, he added.
Porsche will be vying with Audi and Lamborghini, the Italian maker of the $450,000 Murcielago SuperVeloce sports car, within VW to develop high-end sports cars, said Christoph Stuermer, an analyst at IHS Automotive in Frankfurt. Mueller's task will be to complement and expand Porsche's four-model lineup with a goal of doubling sales to 150,000 units, Winterkorn said July 6.