Volkswagen, the ‘people’s car’ pioneer that embodied the auto industry’s obsession with expansion, will phase out dozens of combustion engine models by the end of the decade and sell fewer cars globally. ‘together to focus on producing more cost-effective premium vehicles.
“The key objective is not growth,” said Arno Antlitz, chief financial officer, reversing the position taken by former VW executives.
“We are [more focused] quality and margins, rather than volume and market share. VW, he said, would reduce its range of petrol and diesel cars – which includes at least 100 models from several brands – by 60% in Europe over the next eight years.
VW’s new strategy signals sweeping changes in the wider auto industry, which for decades has tried to boost profits by selling more cars every year, even if it required steep discounts.
Former VW chief executive Martin Winterkorn, who resigned following the diesel emissions scandal, had made it his goal to beat Toyota and General Motors to the title of “number one volume” by 2018.
In its quest for global dominance, the Wolfsburg-based group maintained a large presence in the unprofitable North and South American markets, flooding the region with new models even as it suffered heavy losses.
However, a severe shortage of chips caused by the pandemic forced automakers to cut production last year in the face of growing demand. This has allowed brands such as Mercedes and BMW to charge more for their models and make record profits in 2021 despite selling far fewer vehicles.
A similar strategy catapulted VW to the top of the German Dax index earnings chart, posting more than 20 billion euros in pre-tax profits. The company has prioritized more expensive vehicles produced by its Audi and Porsche brands, which account for the bulk of the group’s profits.
Executives from all three automakers were keen to stress that this practice will persist even after supply chain bottlenecks are removed. “I would really like to emphasize that we are not driving a volume strategy,” BMW chief executive Oliver Zipse said last year.
Antlitz said even VW, which billed itself as the world’s largest carmaker before losing the “volume crown” to Toyota and whose executives used to privately target selling 11 million vehicles in a single year, was no longer looking to grow for reasons of size. .
“We have [a significantly] a lower fixed cost base, so we are less dependent on volume and less dependent on growth,” he said, highlighting the fact that VW managed to reduce fixed costs by 41 billion euros in 2019 10% ahead of schedule, while investing in software development and new units.
Even VW’s 52 billion euro investment in electric vehicles – the biggest investment of its kind – would not add unnecessary volume, Antlitz added. “We are not adding capacity: we are reworking factory by factory,” he said, referring to factories in Zwickau and Emden, where combustion engine production lines have been converted to build cars. electricity, while the workers were retrained.
But he also admitted that calculations that electric vehicles would soon be as profitable for VW as combustion-engined models had been challenged by soaring raw material costs for batteries.
“[These] Nickel prices of $50,000 per ton were not fundamentally factored in as we expect the war to hopefully end soon and then commodity prices will pull back at least a little bit more,” said Antlitz.
He added that the principle of falling costs over time remained “intact” and that new battery technology would drive prices down in the long run.