Volkswagen plans to spend $114 billion in pursuit of global sales lead:

Volkswagen has become more cost conscious in recent months, saying on 24 September that further belt-tightening was needed. Photo: Bloomberg

Frankfurt: Europe’s largest auto maker, Volkswagen AG, will maintain a high level of spending on developing new vehicles and upgrading factories over the coming five years. To underpin its bid to become the world’s largest automaker, VW plans to invest €84.2 billion ($114 billion) through 2018, the Wolfsburg, Germany-based company said on Friday in a statement.

“In times like these, our disciplined cost and investment management will remain a cornerstone of our activities,” chief executive officer Martin Winterkorn said in the statement. “We will continue to invest strongly in our innovation and technology leadership, despite the uncertain economic environment.”

VW has been on an expansion binge in recent years as it seeks to overtakeToyota Motor Corp. and General Motors Co. Since Winterkorn took the helm in 2007, the company added the Porsche, Scania, MAN and Ducati brands to VW’s marquee. It also more than doubled the number of factories around the world to 105, adding sites in Mexico, Russia and China. The spending pace may now slow as VW focuses on raising profitability.

VW appears to have cleared most of the big ticket items in terms of investment, said Michael Tyndall, an analyst at Barclays Plc in London. Many of the major VW initiatives are at or through their spending peak.

Belt tightening

The carmaker has become more cost conscious in recent months, saying on 24 September that further belt-tightening was needed. VW outlined plans that same month to boost profitability for the namesake VW brand and loss-making Seat unit.

The VW car brand is forecast to lift its operating profit margin to more than 6% of sales from 3.5% last year, according to a 9 September presentation by chief financial officer Hans Dieter Poetsch. Seat, which posted an operating loss of €156 million last year, has a target profit margin of more than 5%.

VW has sidestepped a slump in European car sales to a two-decade low by expanding in China, the US and Russia. The company has also invested in technology to share parts to lower production costs. Its third-quarter operating profit rose 20% to €2.78 billion. The company expects full-year operating profit to match 2012’s €11.5 billion as spending offsets sales gains by the luxury Audi and Porsche brands. VW targets higher profit in 2014.

Gauri Kesarwani.

PGDM- 1st yr.

Source: Live Mint.

Date: Nov- 23, 2013.