Volkswagen Quadruples its Net Profit for Q1 2006
Just because some automakers are forecasting dark wintry days ahead despite summer being just around the corner, doesn’t mean all manufacturers are suffering. Actually, many of the Asian and some European brands are posting record profits month over month, and while Volkswagen Group isn’t quite yet among these record breakers, nor is it even noticeably out of the red, the first quarter of 2006 is definitely looking up.
It’s difficult to say if CEO Bernd Pischetsrieder and the rest of Volkswagen AG’s executive staff are feeling smug after first quarter results that show that the group’s net profit has quadrupled compared the same time last year, thanks to strong retail sales in a bullish global car market, because the result fell short of what analysts had expected the German automaker would achieve, and therefore its stock fell 3.8 percent to 62.26 euros ($77.82 USD).
Altogether, VW AG’s net profit shot up to 327 million euros ($458 million CAD; $411 million USD) from 70 million euros ($98 million CAD; $88 million USD) in Q1 of 2005, while revenue is up some 21 percent to 25.34 billion euros ($35.5 billion CAD; $31.9 billion). How much was it short from expectations? Analysts, surveyed by Dow Jones Newswires, had their sights on an additional 112 million euros ($157 million CAD; $141 million USD), or a total of 439 million euros ($615 million CAD; $552 million USD).
So what went wrong? In a statement, Volkswagen stated that the year started off well: “The most important automotive markets began 2006 with a positive underlying trend, although the continued risks for automotive demand posed by the economic environment are not insignificant.”
Volkswagen seems moderately positive about its future growth: “Overall, we are forecasting a modest increase in global passenger car sales,” the statement continued. “We are predicting stable automotive demand in the U.S. and Western European markets, while the German passenger car market is expected to grow slightly from a low basis.”
There are at least two ways to look at VW group’s Q1 results; 1) a net profit four times higher than the previous year is a great deal better than what some automakers are facing, loss after loss, or 2) with its high number of all-new models Volkswagen AG needs to be tearing up the sales charts now because, as the new core models age, sales will probably subside. Integral to the automaker’s recent retail activity is the Volkswagen brand, which has been enjoying an upward bounce in popularity thanks to all-new 2006 Jetta and Passat models, plus, here at home, the completely redesigned Golf (which is soon to be renamed Rabbit), capped off with the sporty GTI version, but VW AG, the parent company, has seen its profits rise in more areas than just its namesake brand.
The German automaker was one of the most prolific purchasers of brands in the late ’80s and early ’90s, when any car company worth its salt was snapping up anything and everything with a modicum of brand equity. GM bought Saab, the rights to Hummer and created Saturn, all around the same time it picked up Lotus and then unloaded it on Malaysian economy carmaker Proton. Chrysler Group, in the pre-Daimler days, nabbed Lamborghini and Maserati, not to mention much of Mitsubishi, letting the two luxury brands go when money was needed for internal investment. BMW purchased Rover Group, and its multiple nameplates, before selling one of its best, Land Rover, to Ford Motor Company, which was on the most aggressive brand procurement campaign of them all, next to Volkswagen, having previously picked up Aston Martin, Jaguar, and Volvo, plus a substantial portion of Mazda. There’s more to this story than there is paper to write it on, but suffice to say that few automakers had what now seems to be the foresight to abstain from jumping on the brand auction bandwagon, and now with hindsight at hand, not many have made money in the exercise. Interestingly, Toyota, the most profitable carmaker of all, was then criticized for not buying into the trend.
Volkswagen, mind you, has done well with some of its ultra-premium brands. Luxury vehicles are enjoying tremendous popularity as of late, despite high fuel prices, and VW’s top-line brands are benefiting. If you’re not up on the details, the German automaker is only one brand shy from owning as many individual nameplates as General Motors, and together with its affiliated Audi brand group, has collected as many luxury marques as Ford. Specifically, the Volkswagen brand group oversees Volkswagen, or VW branded cars (German), Skoda (Czech), Bentley (British) and Bugatti (French) nameplates and the Audi brand group comprises the Audi (German), SEAT (Spanish) and Lamborghini (Italian) marques. Confusing things further, Porsche, yes the little rear-engine “niche” sports car manufacturer started by the very man who gave Volkwagen its world-dominating Beetle, just purchased close to 20 percent of VW AG, so, in a reverse-strategy sort of way, Stuttgart’s cars are also part of the family - or at least second cousins once removed.
If you think Volkswagen Group’s near pan-European ownership is impressive, take into consideration that it operates 44 production plants in 11 European countries and an additional 7 countries in the Americas, Asia and Africa. Globally, nearly 345,000 employees produce over 21,500 vehicles, or are involved in vehicle-related services, each working day. Lastly, the Volkswagen Group sells its vehicles in more than 150 countries, most models of which are not available in Canada.
Whether or not such information makes VW AG stock ripe for the taking, is up to the market to decide. According to top analysts, however, it’s not quite where it should be.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Leave a comment