Volkswagen Profits Accelerate, But Doubts Over Union Power Remain – Forbes

Posted: Friday, May 05, 2017

The logo of German carmaker Volkswagen is pictured at the company headquarters in Wolfsburg.  (Photo credit ODD ANDERSEN/AFP/Getty Images)

Volkswagen, struggling to emerge from the financially debilitating “dieselgate” scandal and the longer-running controversy over its politicized governance, has convinced many investors that it has finally turned the corner.

Many investors; but not all.

Volkswagen, Europe’s biggest car maker in terms of sales, confirmed Wednesday its first quarter operating profit accelerated to 4.4 billion euros ($4.8 billion) from 3.13 billion ($3.4 billion) a year ago. It had been forced to reveal these numbers a couple of weeks earlier by German regulators concerned that the company had performed better than its earlier profit growth guidance and the news might leak out.

Coupled with a decision by Volkswagen to change the way it works out its own brand VW’s profit margins, investors had begun to get excited that the long awaited renaissance had begun. This inspired investor reports with euphoric headlines like “Let There Be Light”, by investment bank Jefferies. Before the margin manipulation news, investment researcher Evercore ISI, long a proponent of VW’s huge profit potential simply because it had long wallowed in chronic inefficiencies, declared “The Beast Awakens”.

A Volkswagen AG I D concept electric automobile is displayed in Wolfsburg, Germany.Volkswagen wants to be the world leader in electric cars by 2025 in the wake of the dieselgate emissions cheating scandal. (Photo credit RONNY HARTMANN/AFP/Getty Images)

Toyota of Japan sells roughly the same amount of vehicles globally with a workforce half the size of VW’s. Investors reckon this happens because the engineering workers union thwarts reform by controlling half the votes on the ruling 20-seat supervisory board. The German state of Lower Saxony has two seats on the board too. This has led to a chronic lack of profitability compared with companies like Toyota, they say.

And despite promising recent financial news inspiring investor interest, Bernstein Research still thinks Volkswagen has a lot of work to do because currently there is a leadership vacuum at the company which is being filled by unions.

Bernstein Research analyst Max Warburton said the recent impressive profit performance did not show any fundamental shift in management, operations, cost or philosophy, but just reflected current market activity.

“We remain unconvinced that the leopard has changed its spots – in fact we’re not really clear who is in control of the company , how focused management members are on the day job and how much hunger there is to lift the company’s performance,” Warburton said.


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