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Transportation equipment industry

Volkswagen Warns of Pressure on Margins Despite Strong Sales Growth

Strategic Insights

— 1 min read

Volkswagen, Europe's largest carmaker, has warned that margins will remain under pressure this year, despite a stronger-than-expected European car market and a surge in US sales in the first half. The company's chairman, Ferdinand Piech, has said that Volkswagen will continue to adjust production to forecast sales levels to prevent stocks from accumulating and damaging the residual values of its vehicles. This comes after a sharp fall in Volkswagen's share price earlier this year due to bearish company forecasts.

Key Takeaways:

  • Volkswagen's group sales reached 2.5 million vehicles in the first half, exceeding its original target of 2.4 million and its revised estimate of 2.1 million.
  • The company's new plant in Dresden, marking the extension of its range into luxury vehicles, is expected to produce 30,000 cars in its first year, but could reach 40,000 units if production targets are met.
  • VW's new limousine is expected to compete with the next-generation A8 from its Audi executive car marque and slot in beneath a future "middle-sized" vehicle from its Bentley brand.
  • Net profits increased by 1.7% to DM845m (Euro 432m, $460m) in the first half, despite a sharp rise in sales in western Europe and the US.
  • Pre-tax profits climbed by 10.1% to DM2.2bn.
  • The company blamed tax changes for its relatively low profits increase, saying that net profits would have soared by 31.3% to DM1.09bn without them.
  • Unit sales in Europe increased by 16% to 1.63m, with strong rises in France and Spain.
  • Sales in the US jumped by 44.1% to almost 150,000 vehicles.
  • By contrast, the financial crisis in Brazil caused a 18.3% drop in sales to 183,000 units.

Statistics:

  • Group sales: 2.5 million vehicles in the first half.
  • Original sales target: 2.4 million vehicles.
  • Revised sales estimate: 2.1 million vehicles.
  • Net profits increase: 1.7% to DM845m (Euro 432m, $460m).
  • Pre-tax profits increase: 10.1% to DM2.2bn.
  • Output from new Dresden plant: expected 30,000 cars in first year, 40,000 units if production targets are met.

Sources:

  • The Financial Times, 1999.

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