Volkswagen Raises Spending Again, Troubling Investors – Forbes

Posted: Thursday, December 04, 2014

Volkswagen seems more interested in making more, better, smarter and faster cars and protecting jobs at home than making money, and its decision to increase the already huge rate of investment over the next five years caused predictable exasperation with investors.

Bernstein Research seems to have found a way of coming to terms with VW’s philosophy, apparently giving up the ghost on the company ever deciding to put profits, and investors, first. Bernstein Research’s Max Warburton says VW sees profits as a valuable side-effect of its efforts to do a whole range of things, rather than as the point of doing them in the first place.

“VW wants to be the largest automaker in the world. VW wants to dominate in technology – with the fastest cars, the lightest materials, the best aerodynamics and most sophisticated drive trains. VW also wants to achieve full employment in Lower Saxony to please other stakeholders who support the management and owners. Making money is the possible side-effect of these plans – it is not a goal in itself,” Warburton said in a report.

VW showed this fuel-cell powered Golf at the Los Angeles car show

VW showed this fuel-cell powered Golf at the Los Angeles car show

VW is Europe’s biggest car maker. It dominates sales in there with close to a 25 per cent market share. VW plans to overtake General Motors General Motors and Toyota to be the biggest in the world by 2018 in terms of sales. By 2018, VW’s group pre-tax profit goal is at least eight per cent, and six per cent for its own troubled VW name-sake brand, which is currently struggling to make any money at all. The regional government of Lower Saxony, where VW lives, holds 20 per cent of the shares and this stake carries veto power on all important decisions according to German law.

Late last month Volkswagen announced it will invest 86 billion euros ($106 billion) over the next five years, with the capital spending average increasing to about 17.1 billion euros ($21 billion) a year compared with 16.8 billion euros ($20.7 billion) in the previous five years.

VW has announced that it will seek 5 billion euros ($6.2 billion) worth of efficiencies at its own brand by 2017, and is also reportedly seeking a similar amount of improvements across the other brands, which include Porsche Porsche, Audi Audi Skoda, SEAT, Bentley and Lamborghini.

Evercore ISI wasn’t too happy with VW’s spending plans either.


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