Volkswagen Is The New Global Sales Leader: What It Means – Forbes
Volkswagen AG surpassed Toyota as the global leader in automotive volume sales, delivering 10.3 million vehicles worldwide in 2016, up 3.8% year-over-year. Toyota, which regained its title in 2012 after losing it in 2011 in the aftermath of the Tohoku earthquake and tsunami, sold 10.2 million vehicles during the year, up only 0.2% year-over-year. Two main points arise from this result:
Firstly, Toyota never seemed keen on aggressively manufacturing and selling bulk volumes, and instead focused on improving its efficiency. The company reported 8.5% operating margin for the April-September 2016 period, which was down from 11.2% operating margin a year ago. Toyota has said that its focus lies on maintaining steady profits in 2017, rather than going for an aggressive increase in volumes, and expects its global sales to remain relatively flat this year. Toyota’s just-in-time manufacturing helps it curb extra costs and operate at high efficiency rates. On the other hand, Volkswagen has been struggling with its profitability. The 12-brand behemoth that owns luxury brands such as Audi, Porsche, Bentley, and Lamborghini, reported 7% margin through Q3 in 2016. What hampers Volkswagen’s net profitability is its ailing namesake brand, whose margin stood at 1.6% through Q3, down from 2.8% a year ago, due to added expenses, lower sales, and discounts and incentives offered in view of the dieselgate scandal. In fact the 7% figure for the overall group excludes special items that comprise provisions for the emissions issue, which further lower the company’s operating income. Volkswagen employs ~2x and ~3x the workers employed by Toyota and GM, respectively, and spends a considerable amount on research and development, weighing on its profitability.
Secondly, this means that Volkswagen has somewhat escaped the expected drop in sales due to a tainted image in the eyes of its customers, after the emissions scandal broke out in September 2015. Volkswagen had fitted around 11 million vehicles worldwide with software that allowed cheating on emission tests. Since, the company’s stock took a sharp plunge, a halt on diesel-car sales and tarnished customer perception dampened vehicle sales, and the company has also faced several allegations and fines in different markets. Volkswagen faces several billions in fines and recalls and fixes across the globe, making a huge dent in its kitty. For example, the automaker will now end up spending over $20 billion in the U.S. alone in relation to the emissions scandal to resolve claims from the federal and state regulators and owners of the affected vehicles, and for recalls and fixes. However, the 3.8% year-over-year growth in vehicle deliveries will make the company and its management breathe a sigh of relief, especially since it signals that it has been able to manage no indelible marks on its reputation. Efforts to win back customer trust in the form of recalls, fixes, and hefty compensations to the owners of the affected diesel vehicles might have also helped Volkswagen’s cause.
At the forefront of the growth in Volkswagen’s impressive volume growth in 2016 was the 12.2% year-over-year increase in deliveries to China, its single largest market. Although the Chinese passenger vehicle market grew solidly last year, this was mainly as the government halved the 10% purchase tax on cars equipped with 1.6-liter engines or smaller engines in October 2015, in response to a period of slow growth in the country’s vehicle market. The year-over-over growth rate is expected to slow down in the new year in China, despite the government’s extension of the tax breaks into 2017. A slowdown in China sales could hamper growth in Volkswagen’s overall deliveries this year.
With sales expected to have peaked out in the U.S., Toyota could continue to struggle to sell more vehicles. However, losing the global sales crown to Volkswagen in 2016 doesn’t mean all that much for either company. While one focuses on higher profitability, the other is grappling still with the aftermath of its biggest scandal ever.
Have more questions on Volkswagen? See the links below.
- Settlements In The U.S. Continue To Drain Volkswagen’s Bank Accounts
- Volkswagen Tries To Appease Customers In Canada As Emissions Row Continues
- How South Korea Is Giving Volkswagen A Very Hard Time