VW aims for long-term profits image

The German automaker has managed to overcome General Motors last year to snatch the second place among global automakers. But that’s not all, because besides the stride to become the absolute No. 1, the carmaker also wants to pull ahead in terms of profits.

If you watched the evolution of the VW Group – with its myriad of auto brands (from most affordable Skoda to Bugatti, passing through Volkswagen and Audi) – you could have noticed that sales over the past five years have jumped by 30%. And, because sales and profits are entirely different notions, the latter has not followed suit, remaining stubbornly the same.

For the company’s investors the prospect is of an up-hill battle: Toyota sells a little more vehicles and has an earnings margin that is very close to 10%. The Japanese are also spending way lower amounts on research and development, with Volkswagen aiming for a long-term profit level close to 8%.

By 2018, VW’s CEO Martin Winterkorn has planned 5 billion euros ($6.4 billion) of cost cuts and wants an 8% profit target for the company, with a 6% margin at the VW namesake brand – which is now close to negative figures.

For that, a crucial step is the final implementation of the Group’s modular production system, known as the “MQB” – a troubled move, as many analysts and observers actually think it increased, not decreased costs. Still, there is room for improvement. So far, just 15% of the Group’s vehicles are built using it, a volume that should go up to 30% by 2016.

Via Forbes