Global Insight Perspective
VW Group global sales rose 9.3% y/y in 2006 reaching a record 5.73 million units as all brands experienced higher sales worldwide.
The German carmaker not only managed to increase global sales through all its brands but also succeeded in maintaining a leading position in Europe and China while ending a trend of declining sales in the United States. It also sowed the seeds of future growth in the fast growing markets of Russia and India.
The carmaker improved sales performance in 2006 is another tangible outcome of the company's restructuring drive initiated in 2004 and bodes well for the carmaker's financial position. However, a potential brand reorganisation and management changes may stifle the impact of the ForMotion Plus action plan, which should lead the company to record profit levels in 2008.
The Volkswagen (VW) Group has achieved record global sales in 2006, fuelled by growing sales of all brands worldwide. The world's fourth largest carmaker is expecting less dynamic growth in 2007 as difficult market conditions are likely to prevail in Western Europe and the United States but is hopeful about future sales prospects in emerging markets such as China, Russia and India. The VW Group, which just welcomed Martin Winterkorn as new chairman of the management board, will however be confronted with new challenges in 2007 as the main architects behind the revival of the core VW passenger car brand, Bernd Pischetsrieder and Wolfgang Bernhard, will be absent and new model launches will slow down.
The VW group, comprising the Audi, Bentley, Bugatti, Lamborghini, SEAT, Skoda and VW brands, has sold a record 5.73 million vehicles worldwide in 2006, which corresponds to a 9.3% year-on-year (y/y) rise on 2005. In a statement, Winterkorn said "All brands contributed to this record." In fact, Audi reported its 13th consecutive sales record with 905,000 units sold worldwide, up 9.2% y/y and surpassing the division's own forecast set at 900,000 units. The core VW brand saw sales rise 10% on the year in 2006 to a new record of 3.395 million passenger cars, thanks essentially to rising demand in China, South America, Germany and Western Europe. Skoda has achieved record sales in 2006 with total deliveries reaching 550,000 units, which represents a staggering 11.7% increase on the year, as the Czech brand continued to make steady gains in Germany and key Eastern European markets.
2006 also proved a good year for the German carmaker's luxury car stable as Bentley increased sales 7.1% y/y in 2006 to 9,200 vehicles, which also marks a new record for the division and Lamborghini sales advanced 30% in 2006 to 2,087 units. Bugatti sold 47 units of the superlative Veyron and SEAT also managed to curb a trend of declining sales and saw global delivery edge up 1.9% at 430,000 units.
Looking at the carmaker's performance by region, the VW Group, unlike its closest rivals PSA Peugeot-Citroën and Renault, managed to beat a rather unfavourable and increasingly competitive market context by boosting sales 5.3% at 3.11 million units in Western Europe. The VW, Audi and Skoda brands played a central role in the company's good performance in its main regional market, although a dramatic sales acceleration in the final months of 2006 in Germany also helped. The VW passenger car brand sales gained 5.6% in Western Europe reaching 1.525 million units. Bernhard said in a statement, "We have not only defended our market leadership in Europe, but have further extended our lead." The brand's market share in Western Europe rose from 10.3% to11%. Developments in Eastern Europe were also positive for the core VW brand. The carmaker noted that growth in deliveries to customers was particularly strong in Russia, where 19,200 VW brand vehicles were sold, 59.6% up on the figure for 2005.
The German carmaker also managed to secure its lead in the buoyant but hard-fought Chinese market, where the Group sells about twice as many vehicles as in the United States. Passenger car sales in China came in at 711,000 units, which corresponds to significant growth of 24.3%. Developments in the South America and South Africa regions were equally positive, with vehicle sales up 14.9% to 683,000 units. In Brazil in particular, there was a strong rise of 15.1% to 441,000 vehicles. In the United States, the sales turnaround initiated in 2005 with the launch of the new Passat and Jetta continued to take shape as the Group delivered 330,000 vehicles to customers, representing a y/y increase of 5.9%.
Outlook and Implications
The positive sales performance reported by the VW Group is founded on the company's new model drive and ability to compete more efficiently in Western Europe, as well as clear improvements in the key markets of China, Russia and Brazil which bode well for the company's future prospects. However, the carmaker will continue to face difficult challenges as the frequency of new model launches is set to slow into 2007 and the company's supervisory board will continue to be disturbed by further power struggles, which may in effect just bring a premature end to the carmaker's ongoing restructuring efforts and their inclusion in the company's future strategic orientation. Meanwhile, the market context in Western Europe and the United States is unlikely to improve while competition in fast growing markets will certainly gather pace as more carmakers are coming up with more tailored products and marketing approaches to tap into rising vehicle demand in emerging markets such as India, Brazil and Russia.
Already it appears that Bernhard, who played a crucial role in restructuring the VW passenger car brand with his "no nonsense" attitude, is getting closer to leaving the company or at least assuming fewer responsibilities. According to reports in German media, Bernhard could depart by the end of January 2007, after new CEO Winterkorn will unveil a reorganisation and management reshuffle on 10 January, in which Bernhard is "relieved" of his model development and sales responsibilities but remains in charge of the brand's factories. It is also expected that Winterkorn will go ahead with his plan to reorganise the company's brand groups to end internal competition between brands and better define individual brands' identities. One of Pischetsrieder's first decisions when he arrived at the head of the VW Group in 2002 was to reorganise the Group's automotive division into two main groups, the VW Brand Group, comprising the VW, Bentley, Skoda and Bugatti brands and the Audi Brand Group, including the Audi, SEAT and Lamborghini brands. However, Winterkorn, the former head of the Audi brand Group, plans to change this and create a premium car group of the Audi, Bentley, Bugatti, and Lamborghini units, while volume brands VW, Skoda and SEAT will be brought together. SEAT could be better off if managed with other volume brands, with which the Spanish brand shares platforms and a number of component systems. In addition this would simplify the product planning process, limiting model overlaps.
Finally, other media reports are suggesting that Ferdinand Piëch, chairman of the supervisory board, may not step down in April 2007 as scheduled. In an interview with Dow Jones, Piëch said that he may decide to retain his title and Bernd Osterloh, head of the VW works council and a supervisory board member, said that he and other labour representatives would support Piëch's decision to remain on the board. If this happens, the ongoing internal struggle between the company's two largest shareholders Porsche and the State of Lower Saxony is unlikely to come to an end.