Peugeot, Facing Same Markets, Stumbles, As The Strong Get Stronger
It is hard to overstate the strength of VW’s position at the moment in terms of financial firepower
Volkswagen’s third quarter results were described as “stunning”, and were all the more impressive because mass market competitors like Peugeot of France were clearly having trouble handling weak markets in Europe.
“The strong are getting stronger; the weak are getting weaker. VW is the standout in terms of exceeding expectations – in every region and every business. VW’s China mass market profits have moved even higher,” said Bernstein Research analyst Max Warburton in a report.
According to VW, profits per car in China on an Earnings Before Interest and Tax (EBIT) basis was €2,600 per car in the third quarter.
“Volkswagen Group has released a stunning set of results for the third quarter that further cements its position as the emerging force in the global automotive industry. VW recorded a third-quarter profit of €7.146 billion, more than triple the figure for the equivalent period last year,” said IHS Automotive analyst Tim Urquhart.
True, these latest figures were distorted by put/call option transactions on the 50.1 per cent in Porsche SE that it doesn’t already own. A more representative figure of the state of the business is operating profit, and that rose to €2.9 billion in the quarter, from €2.0 billion in the same period last year.
“These results are the culmination of VW’s investment in attractive new products, product expansion in emerging markets and the leading position in the Chinese market. VW is on target for a record breaking year, with operating profit in the first three quarters already exceeding the full-year figure for 2010,” Urquhart said.
Gobsmacked
Joining the gobsmacked was Commerzbank analyst Daniel Schwarz.
“Third quarter EBIT was 20 per cent ahead of expectations. This is even more surprising following Peugeot-Citroen’s severe profit warning due to increased pricing pressure in Europe, despite one of the youngest fleets in Europe,” Schwarz said.
It has been a good month for VW. In late October the Financial Times said VW would become the world’s biggest carmaker this year – seven years ahead of schedule – not least because of Toyota’s supply chain problems after the earthquake catastrophe and GM’s bankruptcy. Toyota is expected to grab the crown back next year.
But investors will now start worrying about 2012, as markets in Europe totter and German economic growth slips into reverse.
Commerzbank’s Schwarz is confident VW can handle it. He has raised his EBIT profit forecast to €11.3 billion in 2011 from €10.1 billion, and for 2012 to €9.4 from €8.9 billion. That’s lower than this year’s forecast, but not by much and it is a lot of money.
Inevitable
IHS’s Urquhart agrees.
“It is hard to overstate the strength of VW’s position at the moment in terms of financial firepower as it continues to invest heavily in emerging markets while further consolidating its position in mature markets such as the U.S. and Europe. VW’s ascent to becoming the world’s leading vehicle manufacturer, both in terms of sales volume and profitability, looks inevitable,” Urquhart said.
Neil Winton – November 3, 2011
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