VW shakes up its brands

Mr Pischetsrieder's is shaking up VW's strategy

Europe's biggest carmaker, Volkswagen, has outlined plans to split its car operations into two separate entities.

VW will carve up its brands into two distinct product groups, one combining the "sporty" Audi, Seat and Lamborghini models and the other comprising the "classic" VW, Skoda, Bentley and Bugatti models.

The statement, which followed a meeting of the group's supervisory board, also outlined future investments.

The company said it would invest 31bn euros ($27.2bn; £19.3bn) between 2002 and 2006, two thirds of which would be spent on expanding and updating models.

Analysts said this level is 1bn euros less than VW's previous investment plans, but is still well above the industry average.

Management shake-up

Under the new structure, the heads of the two main brand groups will be responsible for global operations of each broader product group, but individual brands will retain their own character.

The shake-up follows Volkswagen's announcement in September that Bernd Pischetsrieder would become chief executive, replacing long-serving Ferdinand Piech.

Although Mr Pischetsrieder does not officially take over until April, he has already started to play an increasingly active role as a member of the board.

The change of management was always expected to spark a series of reforms at the company.

And the idea of shaking up VW's diverse portfolio of brands has been widely touted.

Analysts expect Mr Pischetsrieder to build Audi into a strong sport brand, while trying to give all brands a clearer identity so they no longer compete against each other.

But eliminating model overlap will be difficult and one bank warned in a research note that the strategic changes will take a long time to bear fruit.

Pledged transparency

The board also approved a management shuffle that sees Martin Winterkorn replacing Franz-Josef Paefgen as head of Audi.

Mr Paefgen will move to head the Bentley and Rolls-Royce unit, while Andreas Schleef has been named as the new chief of Seat.

The group also pledged to improve transparency in the reporting of its results in order to become more investor-friendly.

Shares in VW rose 3.2% to close at 52.7 euros on the Frankfurt stock exchange as investors warmed to the new strategy.