Report Says Big VW Ambitions Might Make It Vulnerable To Downturn
German car manufacturing giant Volkswagen has impressive-looking sales and profits, but when you examine the quality of the performance in more detail, U.S. competitors like Ford Motor look more impressive, according to a report.
Even General Motors, now accelerating away from the bankruptcy disaster, beats VW on some key productivity measures like the number of vehicles sold per employee, sales per employee, and operating profit per employee, the report said.
And there is a danger VW’s plan to become number one in the world might undermine its viability, unless its decision to hire 50,000 more workers quickly translates into sharply higher sales.
That’s the conclusion of a study by the University of Duisburg-Essen’s CAR-Center Automotive Research institute.
VW Group aim’s to be the leader in global sales by 2018 with sales by then of more than 10 million vehicles. In 2010, VW Group ranked third globally with 7.1 million sales. Toyota was number one with 8.4 million and GM second with 7.6 million. VW’s operating income in 2010 was a towering €7.1 billion, easily outstripping Ford’s €6.4 billion, and compared with GM’s €3.9 billion, according to the institute.
In 2010, Ford Motor sold 5.5 million vehicles, but turns this into a resounding victory when you calculate operating profit per vehicle. CAR-Center Automotive Research calculates that Ford earned €1,165 per vehicle, while VW only made €991. GM lagged both with €470 per vehicle.
(the net profit equivalents figures give the lead to VW, but this is because VW’s accounting system includes one-off effects which distort the underlying performance).
The institute said this is all the more laudable because VW’s sales include its massive Audi premium subsidiary, not to mention some rarefied luxury sales of Bentley’s, Bugattis and Lamborghinis.
Where Ford is most impressive is in its comparative performance with VW in productivity, where it sells 34 vehicles per employee compared with VW’s 18, (GM excels with 42) while Ford’s operating profit per employee is €39,232, more than double VW’s €17,880. GM outstrips VW too in this key measurement with €19,510 euros per employee.
VW comes last too in revenue per employee with €317,679 compared with GM’s €520,347 and Ford’s €571,470.
And these are not pyrrhic victories.
The institute said VW recently announced it would hire 50,000 more workers, bringing its headcount to almost 450,000.
“If VW doesn’t want to deteriorate its employee productivity, it has to sell 8.1 million vehicles annually. To achieve the same employee productivity as Ford, VW has to sell with its 450,000 employees 15.1 million vehicles,” institute director Professor Ferdinand Dudenhoeffer said.
This exposes VW to serious risks if there is a sudden economic downturn.
“Companies must be careful so that risks will not become too large. If we look at employees, VW takes a high risk approach compared to Ford,” Dudenhoeffer said.
Neil Winton – April 15, 2011