SAMPLE COPY The World’s Car Manufacturers 7th Edition An operating and financial review
The World’s Car Manufacturers 7th Edition An operating and financial review By Jonathan Storey SAMPLE COPY The World’s Car Manufacturers A strategic review of finance and operations 2003 Edition SAMPLE COPY THE AUTHOR Jonathan Storey has worked in the motor industry for more than 15 years. Beginning as a financial analyst for Ford Motor Company, he later moved into the consultancy sector, providing research, analysis and forecasting services to vehicle manufacturers, suppliers and regulatory authorities. He is editor of Automotive World's Automotive Quarterly Review and co-author of the sister publication The World’s Truck Manufacturers 7th Edition. Acknowledgements The author would like to express his thanks to all vehicle manufacturers that provided information for this report. Copyright © 2003 Synesis Media Ltd. This work may not be photocopied or otherwise reproduced within the terms of any licence granted by the Copyright Licensing Agency Ltd or the Publishers Licensing Society Ltd. This Management Report may not be reproduced in any form or for any purpose without the prior knowledge and consent of the publisher. The views expressed in this report are not necessarily those of the publisher. While information, advice or comment is believed to be correct at the time of going to press, the publisher cannot accept any responsibility for its completeness or accuracy. Printed and bound in Great Britain by IKON Office Solutions, London Document Services, 37–42 Compton Street, London EC1V 0AP. ii LIST OF CONTENTS List of contents ......................................................................................................................................................................................................................iii Preface................................................................................................................................................................... ix Chapter 1: Performance comparisons..............................................................................................................1 Introduction............................................................................................................................................................................................................................ 1 Global demand....................................................................................................................................................................................................................... 1 Aggregate sales & operating profit....................................................................................................................................................................................... 4 Aggregate revenue.................................................................................................................................................................................................................. 5 Average unit revenue by manufacturer 2002 ...................................................................................................................................................................... 6 Manufacturer operating margins .......................................................................................................................................................................................... 8 Cash holdings ......................................................................................................................................................................................................................... 9 Revenue per employee ........................................................................................................................................................................................................ 10 Production per employee West European carmakers ..................................................................................................................................................... 11 Industry structure................................................................................................................................................................................................................. 13 SAMPLE COPY Chapter 2: BMW Group .................................................................................................................................. 14 Overview............................................................................................................................................................................................................................... 14 Recent performance............................................................................................................................................................................................................. 14 Business structure ................................................................................................................................................................................................................ 17 Markets & Models................................................................................................................................................................................................................ 20 Production ............................................................................................................................................................................................................................ 21 Notes on financial statistics ................................................................................................................................................................................................ 22 Chapter 3: DaimlerChrysler............................................................................................................................24 Overview............................................................................................................................................................................................................................... 24 Recent performance............................................................................................................................................................................................................. 26 Business structure ................................................................................................................................................................................................................ 27 Markets & Models................................................................................................................................................................................................................ 30 Production ............................................................................................................................................................................................................................ 31 Notes on financial statistics ................................................................................................................................................................................................ 34 Chapter 4: Fiat Auto........................................................................................................................................37 Overview............................................................................................................................................................................................................................... 37 Recent performance............................................................................................................................................................................................................. 39 Business structure ................................................................................................................................................................................................................ 42 Markets & Models................................................................................................................................................................................................................ 44 Production ............................................................................................................................................................................................................................ 45 Notes on financial statistics ................................................................................................................................................................................................ 47 Chapter 5: Ford................................................................................................................................................48 Overview............................................................................................................................................................................................................................... 48 Recent performance............................................................................................................................................................................................................. 51 Business structure ................................................................................................................................................................................................................ 52 Markets & Models................................................................................................................................................................................................................ 55 Production ............................................................................................................................................................................................................................ 56 Notes on financial statistics ................................................................................................................................................................................................ 60 Chapter 6: Fuji Heavy Industries (Subaru.....................................................................................................62 Overview............................................................................................................................................................................................................................... 62 Recent performance............................................................................................................................................................................................................. 63 Business structure ................................................................................................................................................................................................................ 64 Markets & Models................................................................................................................................................................................................................ 65 Production ............................................................................................................................................................................................................................ 67 Notes on financial statistics ................................................................................................................................................................................................ 68 SAMPLE COPY Chapter 7: General Motors .............................................................................................................................69 Overview............................................................................................................................................................................................................................... 69 Recent performance............................................................................................................................................................................................................. 71 Business structure ................................................................................................................................................................................................................ 72 Markets & Models................................................................................................................................................................................................................ 75 iii Production ............................................................................................................................................................................................................................ 76 Notes on financial statistics ................................................................................................................................................................................................ 79 Chapter 8: GM Daewoo Auto & Technology ................................................................................................80 Overview............................................................................................................................................................................................................................... 80 Recent performance............................................................................................................................................................................................................. 82 Business structure ................................................................................................................................................................................................................ 82 Markets & Models................................................................................................................................................................................................................ 83 Production ............................................................................................................................................................................................................................ 84 Notes on financial statistics ................................................................................................................................................................................................ 84 Chapter 9: Honda............................................................................................................................................85 Overview............................................................................................................................................................................................................................... 85 Recent performance............................................................................................................................................................................................................. 87 Business structure ................................................................................................................................................................................................................ 87 Markets & Models................................................................................................................................................................................................................ 89 Production ............................................................................................................................................................................................................................ 90 Notes on financial statistics ................................................................................................................................................................................................ 92 SAMPLE COPY Chapter 10: Hyundai motor.............................................................................................................................93 Overview............................................................................................................................................................................................................................... 93 Recent performance............................................................................................................................................................................................................. 95 Business structure ................................................................................................................................................................................................................ 95 Markets & Models................................................................................................................................................................................................................ 96 Production ............................................................................................................................................................................................................................ 99 Notes on financial statistics .............................................................................................................................................................................................. 100 Chapter 11: Isuzu Motors .............................................................................................................................. 101 Overview............................................................................................................................................................................................................................. 101 Recent Performance .......................................................................................................................................................................................................... 101 Business structure .............................................................................................................................................................................................................. 103 Markets and models........................................................................................................................................................................................................... 105 Production .......................................................................................................................................................................................................................... 106 Notes on Financial Statistics............................................................................................................................................................................................. 107 Chapter 12: Mazda .......................................................................................................................................... 108 Overview............................................................................................................................................................................................................................. 108 Recent performance........................................................................................................................................................................................................... 109 Business structure .............................................................................................................................................................................................................. 110 Markets & Models.............................................................................................................................................................................................................. 111 Production .......................................................................................................................................................................................................................... 113 Notes on financial statistics .............................................................................................................................................................................................. 115 Chapter 13: MG Rover Group ....................................................................................................................... 116 Overview............................................................................................................................................................................................................................. 116 Recent performance........................................................................................................................................................................................................... 117 Business structure .............................................................................................................................................................................................................. 117 Markets & Models.............................................................................................................................................................................................................. 118 Production .......................................................................................................................................................................................................................... 118 Notes on financial statistics .............................................................................................................................................................................................. 119 SAMPLE COPY Chapter 14: Mitsubishi Motors ...................................................................................................................... 120 Overview............................................................................................................................................................................................................................. 120 Recent performance........................................................................................................................................................................................................... 122 Business structure .............................................................................................................................................................................................................. 123 Markets & Models.............................................................................................................................................................................................................. 124 Production .......................................................................................................................................................................................................................... 126 Notes on financial statistics .............................................................................................................................................................................................. 128 Chapter 15: Nissan.......................................................................................................................................... 129 Overview............................................................................................................................................................................................................................. 129 Recent performance........................................................................................................................................................................................................... 131 Business structure .............................................................................................................................................................................................................. 132 Markets & Models.............................................................................................................................................................................................................. 133 iv Production .......................................................................................................................................................................................................................... 134 Notes on financial statistics .............................................................................................................................................................................................. 136 Chapter 16: Porsche ....................................................................................................................................... 136 Overview............................................................................................................................................................................................................................. 137 Recent performance........................................................................................................................................................................................................... 138 Business structure .............................................................................................................................................................................................................. 139 Markets & Models.............................................................................................................................................................................................................. 140 Production .......................................................................................................................................................................................................................... 140 Notes on financial statistics .............................................................................................................................................................................................. 140 Chapter 17: Proton .......................................................................................................................................... 142 Overview............................................................................................................................................................................................................................. 142 Recent performance........................................................................................................................................................................................................... 143 Business structure .............................................................................................................................................................................................................. 144 Markets & Models.............................................................................................................................................................................................................. 145 Production .......................................................................................................................................................................................................................... 146 Notes on financial statistics .............................................................................................................................................................................................. 147 SAMPLE COPY Chapter 18: PSA Peugeot Citroën .................................................................................................................. 148 Overview............................................................................................................................................................................................................................. 148 Recent performance........................................................................................................................................................................................................... 150 Business structure .............................................................................................................................................................................................................. 152 Markets & Models.............................................................................................................................................................................................................. 154 Production .......................................................................................................................................................................................................................... 156 Notes on financial statistics .............................................................................................................................................................................................. 157 Chapter 19: Renault Automobile.................................................................................................................... 157 Overview............................................................................................................................................................................................................................. 158 Recent performance........................................................................................................................................................................................................... 160 Business structure .............................................................................................................................................................................................................. 162 Markets & Models.............................................................................................................................................................................................................. 164 Production .......................................................................................................................................................................................................................... 165 Notes on financial statistics .............................................................................................................................................................................................. 167 Chapter 20: Suzuki ..................................................................................................................................... 168 Overview............................................................................................................................................................................................................................. 168 Recent performance........................................................................................................................................................................................................... 170 Business structure .............................................................................................................................................................................................................. 170 Markets & Models.............................................................................................................................................................................................................. 173 Production .......................................................................................................................................................................................................................... 173 Notes on financial statistics .............................................................................................................................................................................................. 175 Chapter 21: Toyota..................................................................................................................................... 176 Overview............................................................................................................................................................................................................................. 176 Recent performance........................................................................................................................................................................................................... 178 Business structure .............................................................................................................................................................................................................. 179 Markets & Models.............................................................................................................................................................................................................. 180 Production .......................................................................................................................................................................................................................... 183 Notes on financial statistics .............................................................................................................................................................................................. 185 SAMPLE COPY Chapter 22: VW Group ............................................................................................................................... 186 Overview............................................................................................................................................................................................................................. 186 Recent performance........................................................................................................................................................................................................... 188 Business structure .............................................................................................................................................................................................................. 189 Markets & Models.............................................................................................................................................................................................................. 191 Production .......................................................................................................................................................................................................................... 194 Notes on financial statistics .............................................................................................................................................................................................. 196 Chapter 23: Methodology & exchange rates ............................................................................................ 197 Spreadsheet structure......................................................................................................................................................................................................... 197 Glossary of financial statistics .......................................................................................................................................................................................... 198 Performance ratios............................................................................................................................................................................................................. 200 Exchange rates ................................................................................................................................................................................................................... 202 v List of figures Figure 1 : Figure 2 : Figure 3 : Figure 4 : Figure 5 : Figure 6 : Figure 7 : Figure 8 : Figure 9 : Figure 10 : Figure 11 : Figure 12 : Figure 13 : Figure 14 : Figure 15 : Figure 16 : Figure 17 : Figure 18 : Figure 19 : Figure 20 : Figure 21 : Figure 22 : Figure 23 : Figure 24 : Figure 25 : Figure 26 : Figure 27 : Figure 28 : Figure 29 : Figure 30 : Figure 31 : Figure 32 : Figure 33 : Figure 34 : Figure 35 : Figure 36 : Figure 37 : Figure 38 : Figure 39 : Figure 40 : Figure 41 : Figure 42 : Figure 43 : Figure 44 : Figure 45 : Figure 46 : Figure 47 : Figure 48 : Figure 49 : Figure 50 : Figure 51 : Figure 52 : Figure 53 : Figure 54 : Figure 55 : Figure 56 : Figure 57 : Figure 58 : Figure 59 : Figure 60 : Figure 61 : Figure 62 : Figure 63 : Figure 64 : Figure 65 : Figure 66 : Figure 67 : Figure 68 : Figure 69 : Figure 70 : Figure 71 : Figure 72 : World car demand Monthly new car registrations, worldwide(1) 2001-2003 Aggregate unit sales & operating profit of the major carmakers Aggregate revenue - W. European, Japanese & US carmakers Average unit revenue by manufacturer, 2002 Manufacturer operating margins - simple average, 1983-2002 Manufacturer operating margins - simple average, 1998-2002 Cash holdings as at September 2003 Revenue per employee 1983 & 2002 (€) Production per employee, west European carmakers Industry structure - 2002 car & LCV sales by group* Industry structure - 1989 car & LCV sales by group Latest results - BMW BMW net profit trend BMW revenue & pre-tax profit trend BMW Group revenue by division (%) BMW Group PBT by division (€m) BMW customer deliveries by market BMW production by model & model plans Latest results - DaimlerChrysler DC car divisions) revenue and operating profit trend DC net profit trend DC revenue by division DC unit sales by market (000s) DC production by model & model plans Alfa Romeo & Lancia sales Latest results - Fiat Group Fiat Auto revenue & operating profit trend Fiat Auto net profit trend Fiat Group revenue by division (%) Fiat Auto unit sales (000s) Fiat Auto production by model & model plans Latest results - Ford Ford Auto revenue & operating profit trend Ford Automotive net profit Ford Europe net profit Ford revenue & net profit by division ($m) Ford Group, factory sales by market (000s) Ford Europe, unit sales by market Ford Europe production by model & model plans Latest results - FHI FHI revenue & operating profit trend FHI net profit trend FHI revenue by division (%) Subaru unit sales by market Subaru production by model & model plans Latest results - GM GM Europe revenue & net profit trend GM net profit trend GM net income by division ($m) GM unit sales by region (000s) New car registrations by market, GM brands, western Europe GM Europe production by model & model plans Latest results - Daewoo Motor DM revenue trend DM net profit trend Daewoo Motor unit sales Daewoo production by model and model plans Latest results - Honda Honda Automobile revenue & operating profit trend Honda net profit trend Honda revenue & operating profit by division (¥bn) Honda unit sales by market (000s) Honda production by model & model plan Latest results - Hyundai Motor Hyundai Motors revenue & operating profit trend Hyundai Motor net profit trend Hyundai & Kia unit sales by market Hyundai and Kia production by model & model plans Latest results - Isuzu Isuzu revenue & operating profit trend Isuzu net profit trend SAMPLE COPY SAMPLE COPY vi 2 2 4 5 6 7 7 9 10 11 12 12 15 15 16 16 16 19 21 25 25 26 28 30 32 38 40 40 41 42 44 46 49 49 50 50 52 55 55 59 62 63 63 64 66 67 70 70 71 72 75 75 77 81 81 81 82 84 86 86 86 88 88 91 94 94 94 97 98 102 102 102 Figure 73 : Figure 74 : Figure 75 : Figure 76 : Figure 77 : Figure 78 : Figure 79 : Figure 80 : Figure 81 : Figure 82 : Figure 83 : Figure 84 : Figure 85 : Figure 86 : Figure 87 : Figure 88 : Figure 89 : Figure 90 : Figure 91 : Figure 92 : Figure 93 : Figure 94 : Figure 95 : Figure 96 : Figure 97 : Figure 98 : Figure 99 : Figure 100 : Figure 101 : Figure 102 : Figure 103 : Figure 104 : Figure 105 : Figure 106 : Figure 107 : Figure 108 : Figure 109 : Figure 110 : Figure 111 : Figure 112 : Figure 113 : Figure 114 : Figure 115 : Figure 116 : Figure 117 : Figure 118 : Figure 119 : Figure 120 : Figure 121 : Figure 122 : Figure 123 : Figure 124 : Figure 125 : Figure 126 : Figure 127 : Figure 128 : Figure 129 : Figure 130 : Figure 131 : Figure 132 : Figure 133 : Figure 134 : Isuzu unit sales by region Isuzu production by model & model plans Latest results - Mazda Mazda revenue & operating profit trend Mazda net profit trend Mazda unit sales by market Mazda production by model & model plans Latest results - MG Rover MG Rover production & product plans Latest results - MMC MMC revenue & operating profit trend MMC net profit trend Mitsubishi unit sales by market (000s) Mitsubishi production by model & model plans Latest results - Nissan Nissan revenue & operating profit trend Nissan net profit trend Nissan unit sales by market Nissan production by model & model plans Latest results - Porsche Porsche revenue & operating profit trend Porsche net profit trend (€) Porsche Group revenue by division (%) Porsche unit sales by market Porsche production by model & model plans Latest results - Proton Proton revenue & pre-tax profit trend Proton unit sales by market (including Lotus) Unit sales in western Europe, Proton, Daewoo, Hyundai & Kia brands Latest results - PSA PSA revenue & operating profit trend PSA net profit trend (€) PSA revenue by division (%) PSA unit sales by market (000s) PSA production by model & model plans Latest results - Renault Renault Auto revenue & operating profit trend Renault Group net profit trend Renault Group revenue & operating profit by division (%) Renault Auto unit sales by market Renault Auto production by model & model plans Latest results - Suzuki Suzuki revenue & operating profit trend Suzuki net profit trend Suzuki revenue by division (%) Suzuki new car registrations by market Suzuki production by model & model plans Latest results - Toyota Toyota revenue & operating profit trend Toyota net profit trend Toyota unit sales by market Toyota production by model & model plans Latest results - VW VW revenue & operating profit trend VW net profit trend (€) VW Group revenue by division (%) VW unit sales by market VW production by model & model plans Spreadsheet structure Spreadsheet structure Exchange rates - units of currency per euro Value of export earnings in foreign currency SAMPLE COPY vii 105 106 109 109 109 112 114 116 118 121 121 122 125 126 130 130 130 133 135 137 138 138 139 139 140 143 143 145 145 149 149 150 151 154 155 159 159 160 161 164 166 169 169 169 170 172 174 177 177 178 181 182 187 187 188 190 192 193 197 198 202 203 Appendix 1 (on disk): Financial statistics and performance ratios by manufacturer (euro) BMW Group Ford Werke Mitsubishi Motors BMW – Rover Group Ford - Volvo Cars Mitsubishi Automobile BMW AG Fuji Heavy Industries (consolidated) Nissan Daewoo Motor Fuji Heavy Industries (nonconsolidated) Porsche DaimlerChrysler Group General Motors DaimlerChrysler Auto DC – Daimler-Benz (Passenger Cars) DC – Daimler-Benz (Automotive) Proton PSA Peugeot Citroën GM Automotive PSA Automobile GM (GMAC on equity basis) GM Saab Automobile Renault Group SAMPLE COPY DC – Daimler-Benz Group DC – Chrysler Corporation DC – Chrysler Automobile DC – Chrysler (CFC on equity basis) Honda Hyundai non-consolidated DC - M-Benz cars Hyundai – Kia Motors Fiat Group Isuzu (non-consolidated) Fiat Auto Isuzu (consolidated) Ford Worldwide Mazda (consolidated) Ford Automotive Mazda (non-consolidated) Ford Europe MG Rover Ford UK Companies/entities same as Appendix 1 World assembly plants Appendix 4 (on disk): Exchange rates Suzuki consolidated Toyota Toyota – Daihatsu Volvo Group Volvo Car VW Group VW Automotive VW – Audi VW – Seat VW – Skoda Financial statistics by manufacturer (native currency) Appendix 3 (on disk): Renault Automobile Suzuki non-consolidated Honda Automobile Hyundai consolidated DC - M-Benz group Appendix 2 (on disk): GM Daewoo Auto & Technology viii PREFACE Welcome to the seventh edition of The World’s Car Manufacturers. I would like to thank all subscribers to the first six editions, not only for subscribing but also for the positive feedback and helpful suggestions for future editions. About this report The primary objective of the report is to provide comprehensive and consistent information on the financial and operating performances of the world’s major car producers. This information is complemented by analysis and commentary, which both highlights the pertinent aspects of the wealth of data included, and provides a guide to some of the pitfalls encountered when interpreting the data. The backbone of the report is the appended database of financial statistics and performance ratios covering all the world’s major car manufacturers and their subsidiaries from 1983 onwards. This comprehensive database is designed to present information in a clear and consistent format, to enable users to analyse and compare the operating performances of a wide range of automotive companies over a statistically significant period. Using these financial statistics, the first chapter of the report contains a series of comparisons between the major carmakers and some illustrations of activity of the industry at an aggregate level. This is followed by individual profiles of all the manufacturers studied, including: recent performance; • • business structure; • new model plans; • key markets; • capacity expansion plans; • production by model; • revenue and profit forecasts; • commentary and analysis. I hope you will find the report meets my aims and your expectations. Jonathan Storey ix CHAPTER 1: PERFORMANCE COMPARISONS Among the manufacturers all of the European groups saw a decline in their new car registrations over the first ten months, with a few individual brands (Seat, Skoda, Citroën, Saab, Smart and Mini) showing an improvement. INTRODUCTION This chapter provides a series of snapshots of the world’s automotive industry - its size, profitability, the numbers employed and other operational data. Fiat Group remained the worst performer over the first ten months with a 10.7% drop in new car registrations and its market share dropped by 0.8pts to 7.4%. The Fiat brand was the worst affected with a drop in new registrations of 11.9% and a 0.6pts fall in market share to 5.6%. SAMPLE COPY The charts are mostly compiled from the database that accompanies this report and they not only provide some interesting perspectives on the way the industry and its key players are developing, but also illustrate some of the uses to which the database can be put. Fiat Group’s share of the west European car market excluding Italy was just 4.0% in 2002 and is heading for 3.6% in 2003. This would be a lower share than Toyota. GLOBAL DEMAND 2002 Global car demand increased marginally during 2002 to just over 49m units. Continuing weakness in western Europe, Nafta and South America was offset by growth in other regions, particularly a surge in demand in non-Japan Asia where car sales rose by over 20% to 4.3m units. Among the major groups, Ford's performance was the next weakest. New registrations of its vehicles dropped by 4.3% to 1.35m units as the Focus entered its runout phase and the Mondeo suffered from the increasing switch to premium brands. VW Group also underperformed the West European market, with a 3.2% drop in new registrations as falling demand for VW and Audi branded models was partly offset by a small rise in demand for Seat and Skoda. Demand for the VW brand is of course expected to revive now the Golf has been launched. In a typical year the Golf accounts for about28% of the group's car sales in western Europe and about 47% of the VW brand's sales. 2003 The pattern of demand in 2003 is expected to have been very similar, with growth in Asia, Eastern Europe, the Middle East, Oceania, Africa and (marginally) Japan, being mostly offset by declines in western Europe, Nafta and South America. Western Europe PSA and Renault both saw their sales decline over the first ten months but Renault's sales have been picking up in the latter part of the year as the rolling launch of the seven Mégane variants nears its end. New car registrations fell by 1.3% in the first ten months of the year and are expected to end the year 2.4% down. Among the major markets, France has been the worst performer with a drop of 6.7% over the first ten months and a similar drop expected over the full year. Demand in Germany has been on the brink of recovering for some months, but like the wider economy the market continues to stagnate. The launch of the new Golf in October should improve demand in the final months of the year, leaving the full year figure close to its 2002 level. Collectively the Japanese carmakers outperformed the European market with a rise in new registrations of 9% over the first ten months, led by Mazda with a 32% rise. Mitsubishi was the only brand to see a decline and the drop of 0.8% still outperformed the market. SAMPLE COPY The increase was attributable to a combination of new models, wider availability of diesel engines and a more favourable exchange rate. Italy, Spain and the UK all showed an increase in new registrations over the first ten months of the year. The Italian market is expected to turn down in the final two months due to the non-recurrence of an incentive scheme which boosted the prior year results. 1 CHAPTER 22: VW GROUP In 1999 profit dropped again before improving significantly in 2000 and 2001 but the company still remained substantially short of its own performance target. The results for 2002 showed a significant decline, with weak demand in Germany being one of the major problems. OVERVIEW The VW Group is the largest producer of vehicles in Europe in terms of unit sales, though both BMW and DaimlerChrysler are larger in terms of market capitalisation. Globally, VW is the fourth largest producer with an output of 5.0m cars and commercial vehicles in 2002. SAMPLE COPY This, since setting its target for a minimum pre-tax margin of 6.5% in 1997, the closest the company has got is 5.0% in 2001. The group has grown to its present size partly by acquisition, buying Auto-Union and NSU in the 1960s, Seat in 1986, Skoda in 1991 and three luxury marques: Bugatti, Lamborghini and Rolls Royce, in 1998. The non-VW brands accounted for 34% of VW's worldwide car production in 2002. Although the platform policy achieved some substantial scale economies, VW is widely perceived to have suffered from a lack of clarity and flexibility in its approach to new model development. This has had two broad consequences. First, insufficient differentiation between the brands and between some models in particular, means there has been a cannibalisation effect, with models from one of the four core brands taking sales from the others, rather than competitor models. The acquisition of Seat and Skoda enabled the VW Group to establish a clear sales lead in the western European market during the late 1980s and early 1990s, a position reinforced by the surge in domestic sales due to the German reunification boom. However, in profit terms the group was unable to capitalise on the booming demand in the way most of its competitors did. VW’s operating income declined in all but two years from 1985 to 1993 as it struggled to cope with excessive production costs, overambitious capacity expansion plans, and losses at Seat. The group made operating losses in 1992, 1993 and 1994. Some indication of the company’s problems can be taken from the fact that in 1992 its breakeven production volume was quoted as being in excess of 100% of capacity. Second, despite (or perhaps because of) this excess of models within some segments, VW has been notably slow in developing models for newly emerging market segments. For example, despite having a significant presence in North America, VW sells no light trucks there, so has missed out on the booming demand in that sector. In Europe it has only recently launched a Mégane Scénic competitor, nearly seven years after Renault launched the Scenic and several years after GM and PSA (among others) entered the sector with the Zafira and Xsara Picasso. This sector alone now accounts for about 1m units per annum. With this background, it is no surprise that much of VW’s activity during the 1990s was directed towards reducing costs, returning Seat and Skoda to profitable growth and developing an integrated group structure to enable its four principal marques to play to their strengths in the market, while maximising the scale economy benefits in areas such as development, purchasing and production. Central to this was VW's 'platform policy', the plan to produce all the core models on four platforms - not a new idea but a more intense application of an old one than had previously been tried. The company has recognised these problems. Under its new chairman, Bernd Pischetsrieder, who formally took over from Ferdinand Piëch during 2002, the car business has been split in two, with Audi heading a new "sporty" division which includes Seat and Lamborghini. The remaining brands (VW, Skoda, Bentley and Bugatti) are in a division headed by VW. The "sporty" division is in some ways analogous to Ford's Premier Automotive Group but clearly VW is dividing along vehicle dynamic characteristics rather than simply on price. SAMPLE COPY One aim of the brand restructuring is to reduce product overlap. Another is to make the product policy more market-led than manufacturing-led. Mr Pischetsrieder believes that the emphasis given to the platform policy has led VW to miss out on emerging niches, such as those mentioned above. With this plan successfully implemented, the expectation was that VW's lacklustre profits would improve strongly. In 1997 the company set itself a 'medium-term target of at least 6.5%' for its pre-tax return on sales which compared with a 15-year average of 2.3% and peak of 5.2%. This target looked achievable as pre-tax earnings grew, from a low base, by 95% and 63% in 1997 and 1998 respectively. But then VW seemed to run out of steam. 186 Figure 126: Latest results - VW C urre ncy / Unit VW Group Revenue January - September 2002 2003 (%) €(m) - Automotive - Finance €(m) Operating profit Of which: - Automotive - Finance Automotive op. margin €(m) percent Net profit Net margin percent Of which: €(m) 65,269 58,327 6,942 64,112 56,348 7,764 3,714 3,127 587 5.4 1,730 980 750 1.7 1,842 2.8 813 1.3 3,756.0 2,634.0 913.0 209.0 3,710.0 2,588.0 931.0 191.0 Year to December 2001 2002 (%) (1.8) (3.4) 11.8 88,540 80,072 8,468 86,948 77,503 9,445 (53.4) (68.7) 27.8 (3.6) pts 5,424 4,872 552 6.1 4,761 4,040 721 5.2 (12.2) (17.1) 30.6 (0.9) pts (55.9) (1.6) pts 2,926 3.3 2,597 3.0 (11.2) (0.3) pts 5,080.1 3,566.2 1,214.0 299.8 4,984.0 3,501.5 1,202.6 279.9 SAMPLE COPY €(m) €(m) €(m) Customer deliveries 000s Of which: 000s - VW brand grp * - Audi brand grp* 000s - CVs 000s (1.2) (1.7) 2.0 (8.6) (1.8) (3.2) 11.5 (1.9) (1.8) (0.9) (6.6) * VW brand group comprises: VW, Skoda, Bugatti and Bentley * Audi brand group comprises: Audi, Seat & Lamborghini Figure 127: VW revenue & operating profit trend 1,200 1,100 Revenue (€) 1,000 Op. Profit (€) 900 Index (1983 = 100) 800 700 600 500 400 300 200 100 2002 2001 2003 (e) -200 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 0 -100 -300 We agree. He considers that the current model range only covers 65% of the market, whereas he believes a global manufacturer such as VW should cover around 85%. • its best-selling model, the Golf in its runout year; • the appreciation of the euro against the dollar lowering the value of export sales." SAMPLE COPY Sure enough VW's profit plummeted by 56% during the first nine months of the year. It is encouraging to hear this sort of thinking at the company and the fresh approach to product planning should start to pay dividends in two to three years. While its performance should improve in 2004 as it benefits from the new Golf, launched in October, it will still face difficulties with the exchange rate and it is not clear that it has reduced its cost base sufficiently to outperform its principal European rivals. Last year's edition of this report observed that: "VW faces the prospect of 2003 with the unhappy combination of: • demand in Germany still being weak; 187 Figure 128: VW net profit trend (€) 3,500 3,000 2,000 SAMPLE COPY 1,500 1,000 500 2003 (e) 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 -500 1984 0 1983 Index (1983 = minus 100) 2,500 -1,000 -1,500 • RECENT PERFORMANCE €33m to €3,365m. These falls were partly offset by an increase of €62m to €469m in Asia-Pacific. This latter figure does not include the contribution from VW’s Chinese operations which are not consolidated in the group results. 2002 results Over the full year VW’s revenue dropped by 1.8% to €86.9bn as a 3.2% fall in the automotive division’s contribution was partly offset by an 11.5% rise in the financial services division. The decline in automotive revenue reflected a 2.2% drop in vehicle wholesales to 4,996,179 units. China, Great Britain and Mexico were the only significant markets where the group’s sales improved during the year. Pre-tax profit was €3,986m, a decline of 9.6% from the 2001 result of €4,409m. The company’s pre-tax margin of 4.6% was 0.3pts below the 2001 figure. The profit decline was limited by a 24% drop in finance costs to €775m from €1,015m. That reduction was almost entirely due to the €245m increase in the contribution from subsidiaries and joint ventures to €534m, most of which was presumably attributable to VW’s Chinese ventures. The automotive division’s gross profit dropped by 1.5% to €12,760m, a gross margin of 14.7% (based on the group revenue figure) compared with 14.6% a year earlier. The margin increase reflected efficiency improvements (about €1bn was taken out of the cost base) and a rise in the operating lease business. The improvement came despite an 8.7% increase in R&D expense to €2.89bn or 3.7% of automotive revenue compared with 3.3% in 2001. The financial services division gross profit fell by 6.8% to €1.24bn. VW is keen to point out that this represents its second highest pre-tax result, but as they have published only three years’ worth of results according to International Accounting Standards, the claim does not amount to much. However, given the subdued conditions in many of VW’s core markets and the fact that VW was at a weak point in its model cycle, with the Golf and Passat in their final and penultimate years respectively, this was not a bad performance. SAMPLE COPY Group operating profit dropped by 12.2% to €4.76bn, a margin of 5.47% compared with 6.1% a year ago. The decline was more marked than that of gross profit because distribution costs of €7.56bn (2001: €7.55bn) and administrative costs of €2.15bn (€2.15bn) were virtually unchanged in absolute terms but increased as a proportion of revenue as VW was forced to increase sales incentives in the US and Europe. The divisional results were as follows: On a geographical basis, the €663m decrease in operating profit reflected falls of: • €377m to €1,287m in Nafta; • €314m to a loss of €359m in South America; 188 ! The Volkswagen brand group reported a 5.4% drop in revenue to €46.7bn and an 18% drop in operating profit to €2.46bn. The operating margin dropped by 0.8pts to 5.3%. ! The Audi brand group reported a 1.6% rise in revenue to €25.4bn and a 6.7% drop in operating profit to €1.36bn. The operating margin dropped by 0.5pts to 5.3%. ! The CV division reported a 2.9% drop in revenue to €4.9bn and a 54% drop in operating profit to €156m. The operating margin dropped by 3.6pts to 3.2%. It seems extremely poor management not to have made better hedging arrangements previously. The weak euro gave a boost to many of Europe's exporters but most observers agreed it would not last. SAMPLE COPY January - September 2003 Revenue fell by 1.8% to €64.1bn during the first nine months. The decline was almost wholly attributable to the VW brand group which saw a 7% fall due to lower sales and exchange rate effects. The other main divisions contributed higher revenues than a year ago. Furthermore, it is worrying to think that VW's profits in the past two years have been substantially boosted by the weak euro but even with this significant following wind the company has been unable to meet its profit objectives during those years. In the region which VW classes as ‘Europe / Rest of the world’ the adverse effect of lower sales and (in non-eurozone markets) the stronger euro, was more than offset by a richer model mix helping revenue to grow by 1.4% to €45.77bn. ! In North America the adverse exchange rate movement combined with a 6.3% fall in customer deliveries led to an 18.4%drop in revenue to €10.8bn. The Volkswagen brand group was the worst performer, reporting an 7% drop in revenue to €33.1bn and an 81% drop in operating profit to €388m. Most of the new model launches this year are VW brand models, most notably of course the new Golf. ! In the rest of the world, gains in Asia-Pacific more than offset a decline in South America, leaving revenue 9% higher at €7.5bn. The Audi brand group reported a 2.4% rise in revenue to €19.4bn and a 5.3% drop in operating profit to €814m. ! The CV division reported a 3.6% rise in revenue to €3.56bn and an operating loss of €152m compared with a year-ago profit of €142m, reflecting launch costs for the new generation Multivan and Transporter. ! The financial services division reported an 11.8% rise in revenue to €7.76bn and a 27.8% increase in operating profit to €750m. Results by brand group were as follows: Please note the figures for Asia-Pacific do not include China. VW’s joint ventures in that country are included on an equity basis therefore do not affect the group revenue figures other than through the sale of components to the ventures. Group operating profit plummeted by 53.4% to €1.73bn. Full year outlook VW should gain some benefit from the new Golf in the final quarter of the year but the company nevertheless expects its full year operating profit to be only half the 2002 level. Adverse exchange rate movements were the biggest factor in the decline, reducing profit by €1.2bn. Startup costs, principally for the Golf, reduced profit by a further €0.9bn. Lower sales and a weaker mix caused a drop of €0.6bn. The result was also affected by restructuring measures in Brazil which incurred a non-recurring charge of €120m. SAMPLE COPY BUSINESS STRUCTURE At a consolidated level, in 2002 sales of vehicles accounted for 75.7% of group revenue and parts sales for a further 6.2%. These negative factors were partly offset by cost reductions and other improvements. The bulk of other revenue came from the leasing and rental business. In response to its exchange rate problems the company has said it will use financial instruments to hedge two-thirds of its currency exposure in future, compared with 40% previously. In the longer term it may look to achieve a more naturally hedged profile by increasing its production in North America. 189 Figure 129: VW Group revenue by division (%) Division 1996 1997 1998 1999 2000 2001 2002 VW Cars 45.6 43.6 46.0 44.9 44.0 42.6 40.0 VW CV's Audi Seat Skoda 7.9 8.3 7.1 6.1 5.9 5.2 SAMPLE COPY 18.0 18.9 18.8 18.9 18.2 19.7 4.9 20.2 4.9 5.4 5.2 6.0 5.9 5.3 5.5 2.6 3.5 3.8 3.8 4.3 4.9 5.1 Spares 7.0 6.6 5.8 5.9 5.9 6.2 6.7 Fin. Services & Other 14.0 13.7 13.3 14.5 15.8 16.1 17.6 Total 100 100 100 100 100 100 100 Financial services division The division was responsible for financing or leasing 35.7% of VW’s customer deliveries during 2002, up from 30.7% a year earlier. Also during 2002 VW's financial services division started to sell personal and property insurance. It is co-operating with four German insurers: Cosmos Direkt, HDI, Neue Leben Lebensversicherung and Allianz; in order to offer insurance in sectors such as accident, home, legal, life and sickness. The 'VW Law' The European Commission has been examining the so-called ‘VW law’ to see if it infringes EU competition regulations. The VW law limits voting rights at 20%, regardless of the amount of shares an investor owns. The regional government of Lower Saxony holds around 21% of the voting rights in Volkswagen, giving it a special right to block major company decisions. The 43-year-old law could breach of EU rules because it gives the government of Lower Saxony a veto on any takeover of the company. It is also planning to expand into business credits outside its existing financing of automotive dealers. It is hoping to target up to 50,000 existing customers of its leasing services. Executive pay As part of a drive to improve investment efficiency VW is restructuring executive pay. The company is to base up to 40% of 2003's bonus on the achievement of returns above the cost of capital. The introduction of earnings value added (EVA) measures by Mr Pischetsrieder and his new finance director, Mr Pötsch, is designed to encourage managers to think more like investors. In addition to the EVA component, the new bonus structure will add group performance measures to the individual and brand measures already in place. This makes a clear statement to all concerned that the group’s brands need to work with each other, rather than competing. In 2002 VW made a return on invested capital of 7.4%, less than its 7.7% cost of capital - equivalent to destroying €134m ($146m) of value. Product strategy committee Following the adoption of its new brand strategy (see opening comments) VW formed a new product strategy committee (PSC). As its name indicates, the PSC will review product development from a strategic perspective, considering whether new proposals are consistent with the newly defined objective of greater differentiation between the brands. SAMPLE COPY VW's much-vaunted platform policy has frequently been criticised for the resulting lack of brand differentiation and the amount of overlap between various models. However, we would argue that such problems are not an inevitable consequence of the platform policy, the flaws of which have been more to do with execution than with concept. The PSC should help to address this concern. Scania, MAN & VW Trucks In March 2000 VW finally realised its ambition to develop its heavy truck operations when it bought a stake in Scania, following the European Commission's blocking of Volvo's takeover. VW bought 37.4m Scania A shares, representing 18.7% of the company's capital and 34% of the voting rights. The price of SKr370 per share (SKr13.8bn in total) was higher than the SKr280 that VW offered to buy Scania in 1999 and higher than the average SKr266 per share paid by Volvo which holds 30.6% of the voting rights and 45.5% of the capital. 190 The move goes someway to satisfying VW's oftstated desire to develop a presence in the truck industry although this publication questions the wisdom of the move for at least two reasons. During 2003 VW and DC have signed an agreement for VW to supply turbo diesel engines to DC for use in Chrysler’s and Mitsubishi’s European models. First deliveries are scheduled for 2005 and the agreement runs until 2013. Annual deliveries are expected to be around 120,000 units. First, VW paid top dollar for its stake at a time of peak demand in the world's major truck markets. Scania's share price is currently trading around Skr200. Audi / Maserati In September 2003 Audi and Maserati signed a letter of intent for several technical and commercial cooperation projects. The two firms plan joint development and manufacturing of modules from Volkswagen, Audi and Maserati models. Second, the strategic rationale for the move is far from clear. The performance of VW's car operations remains below its publicly stated targets and while this remains the case the company would surely do better to concentrate its managerial and financial resources on its core business rather than be distracted by a business about which it knows relatively little. SAMPLE COPY VW / Siemens In March 2003 VW and Siemens’ automotive division, Siemens VDO, announced a joint venture to develop diesel injection technology. The two companies will invest a total of €270m in the 50-50 venture, which will be known as Volkswagen Mechatronic. The venture will be located in Stollberg in the German state of Saxony. Construction of a new factory for the venture will begin in May, with first production targeted for Q4-2004. The project will employ about 380 people in the first phase. This will rise to 690 in a second phase, planned for 2007. While there is often much to be said for refusing to follow the latest management fashion, we believe VW would do well to follow the examples of Ford, GM, Renault, Saab-Scania and Volvo. These companies have recognised that there are few synergy benefits in maintaining a presence in both car and truck sectors and unless both operations are of sufficient size to compete successfully on a global basis, then better to concentrate on one or the other. VW has said in the past that it wanted a presence in the truck sector to offer a cyclical counter-balance to its car business. This is a weak argument, as the demand for cars and trucks has followed fairly similar patterns in North America and Europe over the past ten years or so, which we find unsurprising. The only noticeable difference is that the demand for trucks shows more volatility, again unsurprising. MARKETS & MODELS 2002 VW’s wholesales dropped by 2.2% in 2002 to 4,996,179 units. The Volkswagen brand group (VW cars, Skoda, Bentley and Bugatti) accounted for 3.54m of these or 70.8% (2001: 70.6%). The Audi brand group (Audi, Seat and Lamborghini) accounted for 1.19m or 23.8%. Sales by the CV division fell by 9.8% to 267,000 units. Looked at another way, over the last decade in which Volvo cars and trucks were part of the same company, the profits of the two division were nearly always been heading in the same direction, albeit at different speeds. SAMPLE COPY Customer deliveries in western Europe fell by 5.1% to 2.827m units, reflecting falls of: • 4.7% to 940,129 units in Germany; Bernd Pischetsrieder, VW's new chairman, has not appeared keen on keeping the stake in Scania, acquired by his predecessor, Ferdinand Piëch. A sale to Hino is suggested as a one way of achieving a quick exit. If there is any substance to these rumours then we would welcome it, having always been critical of the investment in Scania. • 9.8% to 314,522 units in Spain; • 2.9% to 303,117 units in Italy; • 8.6% to 256,827 units in France. Deliveries in Great Britain rose by 7.9% to 332,274 units. During 2003 rumours of a possible tie-up between VW and MAN continued to circulate. Previous editions of this report have pointed out the disadvantages and illogicality of such a move and we continue to hope that the rumours will prove to be ill-founded. A focus on EVA should certainly steer the company away from this idea. In Eastern Europe deliveries fell by 1.8% to 322,266 vehicles, led by a 9.6% drop to 89,061 units in the Czech Republic. VW / DC 191 Figure 130: VW unit sales by market Market 1996 1997 1998 1999 2001 2002 2003 (e) 986,813 19.4 940,129 18.9 937,200 18.9 657,394 12.7 669,494 13.2 663,278 13.3 621,400 12.5 490,281 10.0 534,557 10.4 555,266 10.9 477,473 9.6 410,600 8.3 330,650 6.7 338,252 6.6 348,744 6.9 314,522 6.3 329,000 6.6 Germany Share of VW total (%) 969,361 24.3 N America Share of VW total (%) 300,849 7.5 309,803 7.3 419,057 8.8 554,821 11.3 S. America (2) Share of VW total (%) 752,237 18.8 738,530 17.4 587,280 12.4 Spain Share of VW total (%) 202,713 5.1 232,706 5.5 277,808 5.9 2000 1,006,675 1,102,349 1,155,140 1,025,857 23.7 23.2 23.5 19.9 SAMPLE COPY Italy Share of VW total (%) 232,762 5.8 249,877 5.9 296,862 6.3 300,123 6.1 306,965 5.9 312,036 6.1 303,117 6.1 282,400 5.7 France Share of VW total (%) 228,051 5.7 210,572 5.0 237,908 5.0 264,371 5.4 271,208 5.3 280,434 5.5 256,287 5.1 238,400 4.8 Great Britain Share of VW total (%) 183,427 4.6 207,595 4.9 228,605 4.8 252,473 5.1 264,569 5.1 307,944 6.1 332,274 6.7 324,100 6.5 Other W. Europe Share of VW total (%) 540,139 13.5 580,890 13.7 685,093 14.4 750,956 15.3 792,946 15.4 742,187 14.6 681,143 13.7 645,800 13.0 Other Share of VW total (%) 584,773 14.6 713,766 16.8 912,856 19.2 824,181 16.7 969,440 18.8 877,169 17.3 Total 1,015,807 1,176,100 20.4 23.7 3,994,312 4,250,414 4,747,818 4,922,996 5,161,188 5,080,087 4,984,030 4,965,000 (1) Includes sales by non-consolidated subsidiaries: 165,000 in 95, 232,000 in 96, 280,000 in 97 & 309,000 in 98, 317,194 in 99 & 333,340 in 2000 (2) Also includes Africa from 1994 Nafta deliveries were 0.9% lower at 663,278 units as a 3.5% fall to 424,531 units in the US was mostly offset by rises of 4.6% to 188,523 units in Mexico and 1.5% to 50,224 units in Canada. Distribution changes The company has recently said it is planning to merge the distribution of its different brands at the wholesale level in a move expected to save several hundred million euros. Distribution will be coordinated by the two marketing groups but the company has stressed the changes will not be apparent at the retail level and do not presage a widespread move to multi-branded dealerships. In South America VW’s deliveries fell by 14% to 477,473 units, with deliveries in Brazil dropping by 12.5% to 382,071 units. Asia-Pacific was the main bright spot, with a 34.6% increase in deliveries to 620,624 vehicles, most of which were sold in the Chinese market where deliveries increased by 42.8% to 512,548 vehicles. It seems astonishing that the company has not introduced such 'backroom' changes before. The availability of such scale economies were the main reason VW acquired Audi, Seat and Skoda in the first place. SAMPLE COPY 2003 YTD In the first nine months of 2003 VW delivered 3,710,000 vehicles to its customers, down 1.2%. This reflected falls of 3.5% in Europe, 6.3% in Nafta and 14.1% in South America / South Africa, partly offset by a 26.8% rise in Asia Pacific. Sales expansion VW is aiming to lift its sales by more than 20% over the next 3-4 years, with upwards of half the increase coming from China, where the company expects its sales to double from the 2002 level of just over 0.5m units, by 2007. Five new models have been launched in China during 2003 as part of a €6bn investment programme. Over the first ten months of the year new registrations of VW cars in western Europe fell 3.2% to 2,197,628 units and the group's market share slipped from 18.4% to 18.0%. In the US VW's sales over the first ten months fell by 9.5% to 326,300 units. 192 Figure 131: VW production by model & model plans Mode l Debut C hange 2001 (2004-07) Units (%) Units (%) Units (%) 1.6 7.7 0.8 2.3 23.5 2.3 6.2 0.0 14.4 1.1 0.0 0.0 0.0 0.8 70,377 548,214 24,407 101,500 1,049,839 349,799 106,226 709,897 58,387 6,343 519 3,403 33,756 1.4 10.9 0.5 2.0 20.9 7.0 2.1 0.0 14.1 1.2 0.1 0.0 0.1 0.7 54,232 537,724 11,267 121,862 1,107,598 144,911 95,116 2004 T erm. 2006 2004 82,238 391,219 38,851 115,851 1,201,422 117,419 319,082 0 737,449 56,337 0 0 371 41,821 637,640 48,222 38,120 201,600 7,979 19,224 1.1 10.8 0.2 2.4 22.3 2.9 1.9 0.0 12.8 1.0 0.8 4.1 0.2 0.4 2005 T erm. 2005 2004 - 2002 2003 (e) Lupo Polo Beetle Beetle II Golf Bora Jetta Vento Passat / Santana Sharan T ouareg T ouran Phaeton Caddy 1998 2001 1998 2003 1999 1998 1996 2000 2002 2002 2001 1996 A0 A2 A3 A4 A6 A8 Cabriolet T T /T T S 2002 2000 2003 2000 1997 2002 2002 1998 T erm. 2006 2006 2004 2005 0 49,369 144,756 309,151 182,309 11,708 184 39,349 0.0 1.0 2.8 6.1 3.6 0.2 0.0 0.8 0 37,578 125,538 339,562 178,773 10,942 20,705 34,711 0.0 0.7 2.5 6.8 3.6 0.2 0.4 0.7 0 31,535 126,594 319,398 198,108 15,980 26,876 33,000 0.0 0.6 2.5 6.4 4.0 0.3 0.5 0.7 Marbella Arosa Ibiza T ango Cordoba Leon T oledo Alhambra 1982 1997 2002 2005 2003 1999 1998 2000 T erm 98 2005 T erm. 2004 2004 T erm. 2006 0 22,980 188,427 0 78,770 91,939 47,645 26,524 0.0 0.4 3.7 0.0 1.5 1.8 0.9 0.5 0 19,627 197,311 0 58,646 93,606 39,503 26,308 0.0 0.4 3.9 0.0 1.2 1.9 0.8 0.5 0 14,441 213,765 0 72,423 77,613 38,949 23,006 0.0 0.3 4.3 0.0 1.5 1.6 0.8 0.5 Felicia Fabia Octavia Superb Pickup 1995 1999 1996 2001 1996 T erm. 2001 2006 2004 T erm. 2001 25,928 284,437 175,613 581 3,981 0.5 5.6 3.4 0.0 0.1 0 254,966 163,198 24,305 0 0.0 5.1 3.2 0.5 0.0 0 269,625 174,070 30,000 0 0.0 5.4 3.5 0.6 0.0 1,781 280 320,173 0.0 0.0 6.3 1,210 442 333,666 0.0 0.0 6.6 3,144 919 281,759 0.1 0.0 5.7 5,107,945 100.0 5,023,264 100.0 4,976,700 100.0 SAMPLE COPY Bentley / RR Lamborghini Other Total VW Group (1) Production of predecessor and current models is combined e.g. Vento & Jetta. Includes production by non-consolidated subsidiaries: AutoEuropa, Shanghai-Volkswagen, FAW-Volkswagen and Chinchun Motor. 193 The company is aiming to lift sales in Nafta by more than 50% by 2005 with a new product offensive. Chairman Bernd Pischetsrieder said the group could achieve unit sales of 750,000 a year in the US in the medium term. Much of the growth is expected to come from the new Touareg SUV, with projected sales of 65,000 units in the US by the end of 2004. It will also launch the all-new Microbus in the region in 2004. European operations Germany Production of the new Touran officially began in Wolfsburg in January 2003. VW expects to produce 180,000 units during 2003 year, rising to 200,000 units in 2004. SAMPLE COPY Audi invested more than €500m at Ingolstadt to prepare for production of the new A3 and plans an initial daily production capacity of around 630 units. Product plans In 2002 Volkswagen’s board of management approved a five-year capital spending plan that called for spending of $30bn on new model development and better production. 67% of the budget will be devoted to its operations in Germany, as opposed to the 60% earmarked for the company’s domestic market in its previous plan. Most of the spending will be used for expanding and renewing VW’s model range. Portugal In February 2003 VW announced it would invest €500m at the AutoEuropa plant at Palmela in Portugal. The former joint venture with Ford, which currently produces the Ford Galaxy, VW Sharan and Seat Alhambra is to stop producing those models by 2005. There was concern about the plant's future thereafter but it is now planned to produce a golfbased SUV there and possibly other Golf derivatives, beginning in 2005. However, the decline in performance during 2003 has led to a revision. The company is now aiming to cut €3bn from its plan by cutting spending, improving investment efficiency and making its production more flexible. As part of this plan the company is to increase its use of modules to cover 50% of its production from a current 10%. Spain Seat will make the new Altea sports people carrier one of its three main models, along with the Ibiza and the Leon. It will start manufacturing the Altea at Martorell at the start of 2004. Some €160m has been invested in the development of the vehicle, which will use the same platform as the new Audi 3 and the fifth generation of the VW Golf. Andreas Schleef, chairman of The Altea is the first vehicle totally designed and developed within the framework of the new synergies between Seat and Audi. It will also space out new model launches to avoid having key products age at the same time. One of the reasons its sales and profits are currently suffering is that the Golf and Passat, respectively its first and second best-selling models, are both nearing the end of their lives simultaneously. Slovakia Much like our response to the lack of currency hedging and merging of distribution for the different brands, our response is one of astonishment that the company is only just getting to grips with such elementary issues. W’s plant at Bratislava in Slovakia may be used to produce the Audi Pikes Peak crossover SUV. The plant currently produces the Polo, Golf, Bora, Touareg and the body-in-white Cayenne. Production at Bratislava (which is also a major gearbox plant) has climbed steadily since its opening in 1994/95, reaching 238,400 units in 2002. The major product changes over the next few years are shown in Figure 131. PRODUCTION SAMPLE COPY Hungary In Hungary VW’s Gyor plant may cease car production when production of its only remaining model, the Audi TT, ends in 2005. The plant used to produce the A3 as well but this ended in April this year when the new generation A3, built at Ingolstadt, was launched. Gyor will remain a key plant for engine production, having produced 1.3m in 2002. VW group’s production fell by 1.6% in 2002 to 5.02m units. This figure includes production by nonconsolidated subsidiaries in China. Modular production As mentioned, VW is currently moving on from its platform-based manufacturing strategy toward an all new system based on modules. Over the next four years the company plans to replace its four platforms with a core set of eleven modules, including engines, transmissions, brakes, axles, fuel systems and door locks. Savings of up to 5% of total production costs are expected. VW also believes the modular system will lead to greater brand differentiation. 194 Other regions In September 2003 the foundation stone for the new FAW-Volkswagen factory in Changchun was laid. With a capacity of 330,000upa the new factory is scheduled to be handed over in late 2004 or early 2005. FAW-Volkswagen is investing some €1bn in the project. Brazil As indicated in the results discussion, the company has recently restructured its Brazilian operations cutting 3,933 jobs at its Anchieta and Taubate plants. In its press release the company describes the move as “a redimensioning programme” which is presumably an alternative euphemism for ‘downsizing’. VW has said it will transfer to a newly-created "training and study centre" the workers that do not opt for the voluntary redundancy scheme. It will take care of these workers until their contracts expire November 2006 for the Anchieta workers and February 2004 in the case of the Taubate workers. Also in September the Golf was officially launched in China. It will be built in Changchun and the company is aiming to sell 50,000 units in 2004. The two joint ventures are planning to each launch one new Chinese-built model a year onto the market. SAMPLE COPY Russia VW has made several unsuccessful attempts to establish production facilities in Russia. In October 2003 it announced it was in discussions with the Russian government about a new plant. Few details were available at the time of writing but it sounds as though the plan under discussion is for a fairly small operation, assembling VW models from kits and requiring investment of less than €100m. The company does not want to commit to a bigger project until it has gained some experience. A new VW model for Europe will be built in Brazil from 2005. The Anchieta plant beat competition from VW’s plants in Spain, Portugal and Slovakia to manufacture the Project 249 or ‘Tupi Europa’ model. Up to 180,000upa will be made, all for export, while a domestic version of the model will be made at the VW/Audi Curitiba plant. Mexico VW aims to increase production by 30% in 2005, when it begins producing the new Bora at its Puebla plant. The new model requires investment of $180m at the plant which will have the capacity for 100,000 Boras per year in addition to the existing 400,000upa capacity for New Beetles and Jettas. Ukraine During 2003, Ukraine's ZAO Eurocar, began assembling the Audi A4 and A6 alongside the Skoda models it already produced. Ukrainian Audis are 45% cheaper than those made in Germany and potentially can be exported to nearby Hungary, Slovakia and Russia. The ZAO plant currently has capacity to produce 8,000 Skoda models and extra capacity to produce 45,000 Audi models a year is being constructed. India VW wants to expand in India and is in exploratory talks with various potential local partners for assembly there. Local media report that VW has been talking with Hindustan Motors on an alliance to produce VW models. VW is also considering taking over a Hindustan Motors plant near Madras. In future ZAO Eurocar will also assemble VW brand models including the Passat, Bora, Golf and Polo. Commercial vehicles VW is to go ahead with a modern remake of its Microbus, first seen 50 years ago. The project will cost €600m and create 1,500 jobs at VW's Hanover plant in northern Germany when production starts in 2005. Some €400m will be spent on vehicle development, with the remainder going on new plant and equipment. VW is projecting annual demand of 80,000 units with two-thirds to be sold in North America. If these expectations were met, Hanover's output would be raised by 50% from the current level. The plant currently produces the VW Transporter and LT light commercial vehicles. Skoda has brought forward the launch of CKD assembly of the Octavia at Aurangabad, where it currently assembles the model from SKD units. The shift is due to changes in customs duties. Originally Skoda had planned to change from SKD to CKD operations in 2007. Because of the change there will be a production slowdown at the plant resulting in sales of around 4,500 vehicles this year instead of the hoped for 8,500 units. SAMPLE COPY China The company has recently outlined its planned actions in China over the next five years during which time it expects to invest (or rather expects its joint ventures to invest) some €6bn. It is to double its annual capacity in the country from 800,000upa to 1.6m upa over the next five years. This means expanding its two joint ventures: FAW-Volkswagen in Changchun and Shanghai Volkswagen. VW's truck operations are mainly based in Brazil at Resende where it now produces trucks in the GVW range 7t-40t. Production in 2002 was 18,580 trucks and 5,020 buses, from 8,765 trucks and 3,780 buses in 2000. The trucks are built at VW's Resende plant, near Rio de Janeiro. Output in 2003 is planned at 27,000 vehicles. 195 The company plans to invest €400m over the next four to five years at Resende. Capacity at the plant will be doubled to around 200 trucks per day with exports to Africa, Asia and the Near East accounting for about 25% of output. Statistics are presented in the appendix for the VW Group, Audi AG, Seat SA and Skoda Automobilova AS. The results of Seat are reflected in the group’s consolidated accounts from 1986, those of Skoda from 1992. In October 2003 VW announced it is to establish a truck assembly plant in Mexico. Capacity is planned at 2,000upa to support the company's objective of a market share of 15% in Mexico by 2006. The location of the new assembly plant has not yet been announced but it will be supplied with kits from Resende. However, the engines will be supplied by the Mexican subsidiary of Cummins. The results of the consolidated finance companies are included in the interest results, therefore do not affect the operating income figures. The results of the leasing companies are included within the revenue and operating expense data. Capital investment excludes additions to rental and leasing assets. Cash flow in the data sheets reflects ‘inflow from current operations’. The van division is to invest €600m in Poland for a fourfold increase of production from 40,000 vehicles in 2002 to 150,000 in 2005. VW will manufacture new T5 microbuses and delivery vans. At the Poznan plant the company plans to reach a production capacity of 200 transporters daily by the end of 2003 and by 2004 it hopes to have increased this to 600 vehicles a day. In total, VW will invest €178m in 2003. Employment will increase from 3,400 to 5,000 during that time. In 2001 the company adopted International Accounting Standards for the first time. The figures for 2000 have been restated. The pre-tax profit for 2000 under the German accounting standards was €3,469m. Under the IAS system this figure increased to €3,719m. SAMPLE COPY NOTES ON FINANCIAL STATISTICS The VW Group financial year runs to 31 December. The results of Seat are reflected in the group’s consolidated accounts from 1986, those of Skoda from 1992. 196
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