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Last Updated: Wednesday, 19 March 2008, 00:01 GMT
VW outlines global expansion plans
By Tristana Moore
BBC News, Berlin

These days, Europe's largest carmaker is feeling upbeat.

The new VW Golf GTI
VW will decide on a new US factory this summer

At Volkswagen's annual media conference in Wolfsburg, senior executives proudly announced the company had sold a record number of vehicles in 2007 - 6.2 million.

This helped to push up revenue almost 4% to 108.9bn euros ($172bn; 85bn).

The carmaker also has ambitious plans for the future.

VW will introduce 20 new models in the next three years, including vans and pick-ups, as part of a plan to sell a staggering eight million cars by 2011.

Following Volkswagen's announcement that it was taking a controlling stake in the Swedish truck-maker, Scania, it seems that there's no stopping the German carmaker.

With VW's stake in the German truck-maker Man, rumours have been swirling that there could be a three-way tie-up.

'Massive' US losses

But Volkswagen executives have been quick to deny the rumours.

"A merger is not on our agenda," says Volkswagen's chief financial officer, Hans Dieter Poetsch.

"We were happy to buy a stake in Scania and we respect Scania's management team."

Volkswagen
Volkswagen is Europe's biggest carmaker

Despite the carmaker's euphoric tone, the US market is still proving to be a major cause for concern.

The weak dollar has put a damper on growth in the US market and managers speak candidly about the group's losses.

"Our losses are still triple-digit and, of course, that is unacceptable, but we will improve the situation," says Mr Poetsch.

"We are booking massive losses in North America. Clearly with the dollar-euro rate of more than 1.55, it's almost impossible to export cars profitably from Germany to the US.

"We can do this by exporting niche cars, but as for mass volume cars, we have to produce these in the dollar area. In order to get returns, we have to implement a new business model, operating in the dollar area.

"This means not just the US dollar, it could also be the Mexican peso, which would create a significant natural hedge situation."

'New plant'

He said the firm could run a strategy which was almost independent of currency fluctuations, and which would be the core of a new business model.

"We are currently looking at areas where we could build a new plant and we will also approach the market with products designed specifically for the US market.

"The only drawback is that we can only introduce the first product in early 2010, " Mr Poetsch explains.

It's not going to be a real smooth ride, yet we have to be prepared
Hans Dieter Poetsch

Volkswagen is expected to decide this summer whether it's going to open a new factory in the US.

Once any decision is made, it would take around two to three years before production starts.

The carmaker is hedged through 2012 against the dollar's decline versus the euro.

But the losses in the US market are painful. Volkswagen said currency shifts hurt operating profit by 500m euros last year.

'Different solutions'

Despite troubles in the US, Volkswagen is still aiming to take the title of the world's number one mass-market carmaker.

"In the coming years, we will make the VW group the world's most international carmaker," says Martin Winterkorn, Volkswagen's chief executive.

"The days of a 'world car' are dead and buried. Our customers in China or India expect us, as a global player, to offer entirely different solutions than we do in the US or western Europe," Mr Winterkorn adds.

Porsche Cayenne on assembly line
Porsche's Cayenne uses Volkswagen technology

And what about Porsche's decision to seek a majority stake in Volkswagen?

"Volkswagen's management always welcomed Porsche's approach in the past," says finance boss Poetsch.

"We welcome the next step which Porsche intends to make. What we are talking about is a major step, it's maybe more than just one step," Mr Poetsch elusively says.

"We could create one of the most powerful, most successful, industrial situations in the world in the future," he adds.

'Cost-cutting'

Speaking at the news conference in Wolfsburg, Mr Winterkorn called for Porsche and VW workers to end a bitter dispute that has soured relations between the two companies recently.

As Volkswagen continues its empire-building, the German carmaker is also bracing itself for a possible recession.

"We will continue the cost-cutting measures," Mr Poetsch says.

"We believe the global economic framework could get worse. I don't think it will be a real recession, but growth rates are declining.

"It's not going to be a real smooth ride, yet we have to be prepared."

So the message from Wolfsburg is clear - fasten your seat-belts.



SEE ALSO
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Porsche to increase its VW stake
25 Mar 07 |  Business
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