Volkswagen’s core brand has pledged to end losses in the United States, Latin America and Russia by the end of the decade, counting on cost cuts and higher-margin new models as it tries to move beyond its diesel emissions crisis.
Europe’s largest automaker is pursuing efficiency measures to generate billions of euros for investment in electric cars, new mobility services and automated driving to try to reposition the business following the 2015 emissions cheating crisis.
VW expects a “significant contribution” at its core division to come by 2020 from the Americas and Russia, which account for almost a fifth of its global sales, brand chief executive Herbert Diess said on Friday.
Wolfsburg-based VW launched the seven-seat Atlas and long-wheelbase Tiguan crossovers this year to try to recover ground in the United States, where the diesel crisis began.
The Polo subcompact and Virtus saloon, based on the cost-cutting MQB modular platform, will be introduced in Latin America in the second half of the year.
“We have been growing (sales) again in the U.S., South America and also in Russia since the start of the year,” brand finance chief Arno Antlitz told a news conference.
“We expect this positive development to continue over the course of the year.”
On the rifht road
Investors have said a turnaround at the VW brand, long saddled with high costs, is key to turning the German giant into a more attractive business.
Progress at the brand may continue throughout 2017, Diess said, building on a strong rebound in the first quarter when cost cuts helped operating profit to surge to 869 million euros ($953 million) from 73 million a year earlier.
Beefing up overseas business will complement measures including a hard-fought deal with unions to cut thousands of jobs through natural attrition and weed out red tape, especially in high-cost Germany, and to increase output of vehicles based on the MQB architecture, according to Diess.
VW plans to raise productivity at its German plants by 7.5 percent this year and next, and a further 5 percent in 2019 and 2020, counting on fixed-cost cuts and fine-tuning of R&D, procurement and production operations.
The VW brand is targeting an operating margin at the upper end of a 2.5 to 3.5 percent range this year, after 1.8 percent in 2016, with revenue expected to exceed last year’s adjusted result of 74 billion euros by around 10 percent.
“The substantial restructuring programs are bearing early fruits,” Diess said. “What’s now crucially important is for us to continue along this path and work through our tasks ahead.”
But analysts voiced frustration as VW kept to meager margin targets of at least 4 percent by 2020 and 6 percent by 2025, after reporting a 4.6 percent profitability benchmark for the first three months.
“They’re keeping their cards close to their chest,” said Evercore ISI analyst Arndt Ellinghorst who has an “Outperform” rating on the stock. Ellinghorst has repeatedly criticized VW’s 4 percent margin goal as too low.