After the acquisition of Porsche in August, Volkswagen Group has become a collection of highly-profitable luxury brands including Audi, Bentley, Bugatti and Lamborghini.
And for the first time in the company’s history, luxury brands accounted for 54 percent of VW’s earnings in the first half of the year. That is if Porsche’s profit, which started flowing into VW’s books this quarter, had been included in the first half, according to a report from Bloomberg. In 2007, luxury brands have accounted for only 39 percent of VW’s earnings.
VW’s expansion in the luxury segment has as goal to generate cash to fuel investment of 62.4 billion euros on vehicle development and factory upgrades over five years in order to overtake Toyota and GM in sales and profit by 2018. VW is relying on its luxury group, which sells about 1 million more premium cars a year than either GM or Toyota.
VW’s bet on luxury cars has several advantages, with one being that high-end brands endure economic uncertainties better than volume brands as the wealthy are less prone to cut spending in a slowdown. Another important advantage is the high margins of profit obtained by luxury models such as the Porsche 911 or the Cayenne SUV. These nameplates will help VW’s luxury group profit margins rise to nearly 13 percent, from 11.4 percent in the first half of this year. By comparison, the mass-market division including VW, Skoda and Seat brands has a margin of 4.2 percent.