VW scraps dozens of models and focuses on the premium market
Volkswagen, the pioneer of the “Volkswagen” that embodied the auto industry’s expansionist frenzy, will eliminate dozens of internal combustion engine models and sell fewer cars overall by the end of the decade to focus on producing more profitable premium vehicles.
“The main goal is not growth,” said CFO Arno Antlitz, reversing the attitude of former VW managers.
“We are [more focused] on quality and margins instead of volume and market share.” VW will reduce its range of petrol and diesel cars – which consists of at least 100 models from several brands – in Europe by 60 percent over the next eight years, he said.
VW’s new strategy is a sign of sweeping changes across the auto sector, which for decades has been trying to boost profits by selling more cars each year, even if it has required deep discounts.
Former VW boss Martin Winterkorn, who resigned in the wake of the diesel emissions scandal, had done so made it a goal Toyota and General Motors until 2018 to beat the title “volume number one”.
In its quest for global dominance, the Wolfsburg-based group maintained a strong presence in unprofitable North and South American markets, flooding the region with new models despite suffering heavy losses.
However, a severe chip shortage caused by the coronavirus pandemic forced automakers to scale back production amid rising demand over the past year. This allowed brands like Mercedes and BMW to charge more for their models and post record profits in 2021 despite selling far fewer vehicles.
A similar strategy catapulted VW to the top of the profit table in the German Dax index and recorded more than 20 billion euros in pre-tax profit. The company prioritized higher-priced vehicles from its Audi and Porsche brands, which account for the bulk of the group’s profits.
Executives from all three automakers have stressed that this practice will remain in place even after supply chain bottlenecks subside. “I would like to expressly emphasize that we are not pursuing a volume strategy,” said BMW boss Oliver Zipse last year.
Antlitz said that even VW, which prided itself on being the world’s largest automaker before losing its “volume crown” to Toyota and whose executives were privately aiming to sell 11 million vehicles in a single year, is no longer for the sake of size expand wool .
“We have [a significantly] lower fixed cost base, so we are less volume and growth dependent,” he said, noting that VW managed to cut fixed costs by 10 percent early from €41 billion in 2019 while investing in investments in software development and new ones Units.
Even VW’s €52 billion push into electric vehicles – the largest investment package of its kind – would not add unnecessary volume, Antlitz added. “We’re not expanding capacity, we’re revising factory by factory,” he said, referring to plants in Zwickau and Emden where production lines for internal combustion engines were converted to building electric cars and workers were retrained.
However, he also acknowledged calculations that electric vehicles would soon be just as profitable for VW as models with internal combustion engines, which had been challenged by the sharp rise in raw material prices for batteries.
“[These] Nickel prices of $50,000 per ton were basically not priced in because we assume that the war will hopefully end soon and then the commodity prices will at least drop a little more,” said Antlitz.
The principle of falling costs over time remains “intact” and new battery technologies would lower prices in the long term.