Volk­swa­gen jumps in Chi­nese ve­hi­cle pro­duc­tion

The Pak Banker - - 6BUSINESS -

Volk­swa­gen AG, Europe’s largest au­tomaker, plans to in­crease pro­duc­tion 60 per­cent by 2018 in China, where the Ger­man com­pany’s earn­ings last year surged by al­most half.

A new plant in China ap­proved by the su­per­vi­sory board will build as many as 300,000 ve­hi­cles yearly and will start op­er­at­ing in early 2016, Chief Ex­ec­u­tive Of­fi­cer Martin Win­terkorn said to­day. Ca­pac­ity in China will rise to 4 mil­lion ve­hi­cles a year by 2018 as VW adds seven auto fac­to­ries in the coun­try, he said in a speech at head­quar­ters in Wolfs­burg.

VW is count­ing on growth in China and the U.S., along with gains in the lux­ury-car seg­ment with the Audi brand, to help off­set de­clin­ing de­mand in Europe amid a re­ces­sion. Win­terkorn said to­day that VW is “feel­ing the head­winds” of a com­pet­i­tive global mar­ket, par­tic­u­larly in its home re­gion.

“There’s still enor­mous po­ten­tial in China, but the mar­ket has slowed from dou­ble-digit growth to sin­gle dig­its, and that will re­main so in the fu­ture,” said Ste­fan Bratzel, di­rec­tor of the Cen­ter of Au­to­mo­tive Man­age­ment at the Univer­sity of Ap­plied Sciences in Ber­gisch Glad­bach, Ger­many. “The risk of over- de­pen­dence and over­ca­pac­ity nat­u­rally rises with such a plan. It’s up to VW to man­age that.”

Volk­swa­gen fell as much as 3.8 per­cent to 160.10 eu­ros, the low­est in­tra­day price since Nov. 23, and was trad­ing down 3.5 per­cent at 11:57 a.m. in Frankfurt. The stock has de­clined 6.7 per­cent this year.

The Ger­man man­u­fac­turer has a tar­get of over­tak­ing Toy­ota Mo­tor Corp. (7203) and Gen­eral Mo­tors Co. ( GM) to be­come the world’s big­gest car­maker by 2018. Volk­swa­gen has au­tomak­ing ven­tures with China FAW Group Corp. and Shang­hai-based SAIC Mo­tor Corp. De­liv­er­ies by the Chi­nese part­ner­ships last year to­taled 2.61 mil­lion ve­hi­cles, ac­count­ing for 28 per­cent of the 9.35 mil­lion cars, sport-util­ity ve­hi­cles, vans and heavy trucks Volk­swa­gen sold world­wide in 2012, ac­cord­ing to its an­nual report.

VW, which also owns the Porsche lux­ury-auto brand as well as the Skoda and Seat vol­ume mar­ques, will build at least 10 plants glob­ally, in­clud­ing seven in China, Win­terkorn said. That would raise the num­ber of its fac­to­ries in the coun­try, now the world’s big­gest car mar­ket, to 19.

The com­pany is look­ing at south­ern or south­west­ern China for a site, Jochem Heiz­mann, head of VW’s op­er­a­tions in the coun­try, said to­day at a press con­fer­ence.

GM is also a part­ner with SAIC, and the two are in­ter­ested in buy­ing ail­ing Chi­nese auto pro­duc­ers be­cause they see the mar­ket as over­due for con­sol­i­da­tion, peo­ple fa­mil­iar with the com­pa­nies’ think­ing said last month. Detroit-based GM, al­ready the top for­eign car­maker in China, has a tar­get of in­creas­ing sales there by about 75 per­cent to 5 mil­lion ve­hi­cles by 2015, ac­cord­ing to the peo­ple.

FAW said in early March that the government should or­der for­eign au­tomak­ers to con­trib­ute more to de­velop lo­cal brands and limit those whose sole aim is to win more sales.

VW forecast to­day that profit, rev­enue and de­liv­er­ies will prob­a­bly rise in 2014, with de­mand grow­ing in all re­gions. The com­pany pre­dicted in Fe­bru­ary that op­er­at­ing profit this year will match the 2012 fig­ure, and said firstquar­ter profit will prob­a­bly de­cline as Europe’s auto mar­ket con­tin­ues to shrink. Un­changed earn­ings in 2013 would mark the first time since 2009 that an­nual op­er­at­ing profit hasn’t risen.

“Volk­swa­gen is not com­pletely im­mune to the in­tense com­pe­ti­tion and the im­pact this has on busi­ness,” the com­pany said in a state­ment. Earn­ings be­fore in­ter­est and taxes rose 2.1 per­cent to 11.5 bil­lion eu­ros ($14.9 bil­lion) in 2012, and rev­enue gained 21 per­cent to 193 bil­lion eu­ros, VW said last month, when it also pre­dicted sales and de­liv­ery growth in 2013. The earn­ings con­tri­bu­tion from Chi­nese op­er­a­tions jumped 42 per­cent to 3.7 bil­lion eu­ros, the car­maker said to­day.

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