The German car group Volkswagen announced on Wednesday that it wanted to increase the operating margin of its flagship VW brand to 6.5% by 2026, more than double compared to the existing one, through a deep reorganization plan.
Too low a margin
The transformations that affect all areas of management and the “synergies” to reduce production costs will improve profits “by around ten billion euros” to achieve a “sustainable return on sales of 6.5%” in 2026 , as stated by the group in a statement.
This margin, excluding exceptional items, reached approximately 3% between January and March 2023.
VW, the historic brand of the world’s second-largest automaker, accounted for just over half of the group’s sales last year. But its margin is the lowest of the ten brands in the group, in particular due to an industrial rationality judged insufficient and because it offers more popular models than the luxurious Porsches or Audis, whose margins exceed 10%.
Reaching the milestone set within 3 years “is very ambitious, but achievable if we join forces,” VW brand CEO Thomas Schäfer said in the statement.
“Secure employment and finance the future”
This is the only way to “secure employment, finance (the) future (…)” thanks to our own resources and to “continue investing in new vehicles, technologies, the modernization of our factories and in the qualification of the hand working”. “continued Thomas Schäfer.
The announcement of a reorganization plan was expected. In mid-May, AFP was able to consult an internal note from the German group, which planned to double the profitability of its flagship brand.
Synergies and focus on volumes
To achieve this goal, Volkswagen is counting in particular on more advanced synergies with the other group brands such as Seat/Cupra and Skoda.
The Volkswagen press release cites as an example the future 100% electric model at 25,000 euros, the ID.2, which will be manufactured in Spain with the equivalents of the other two brands and the supervision of the global project entrusted to Seat/Cupra.
Another example is the Volkswagen Passat sedan. By sharing more components and production with the Skoda Superb, the press release mentions a potential saving of around 600,000 euros.
The idea of reducing the range is also maintained, focusing on high-volume models. The brand thus confirms the abandonment of the Arteon sedan.
Volkswagen also wants to simplify its offer in depth and gives as an example its future ID.7 electric saloon that will have 99% fewer configuration options compared to a Golf 7 (the previous generation of the compact saloon).
A plan launched from October
The plan to boost the profitability of the VW brand should be ready by October this year. It already receives the support of the powerful works council with which management must constantly negotiate.
The VW brand shakeup is part of a more global plan to make the ten-brand group more efficient and will be outlined on June 21 by CEO Oliver Blume.
The latter, who came to the head of the group last September, has made the transformation of VW one of his priority projects, with the review of the software strategy.
The Wolfsburg group has been going through a turbulent period since 2015 with the worldwide “dieselgate” scandal.
Since then, it has embarked on the switch to electric cars, which requires tens of billions of euros of investment and puts Volkswagen in competition with new rivals, such as the American group Tesla and the Chinese manufacturers that threaten the German group in China, its main market.
Source: BFM TV
