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Volkswagen Big On Hopes But Short On Detail

Volkswagen Big On Hopes But Short On Detail.

Even U.S. Prospects Talked Up By Diess.

“Warm words yes but we don’t see any specific actions”

Volkswagen investors were finally brought up to date on the impact of dieselgate by the delayed annual press conference and financial results but they went away still concerned about the future after plenty of vague hopes and not much detail.

After talk of how the company will become more entrepreneurial globally, VW brand chief Herbert Diess repeated the old assertion that Volkswagen will finally figure out how to be successful in the U.S. market.

“We believe that the USA has in fact the greatest potential for Volkswagen worldwide in the next decade,” Diess was quoted by Automotive News as saying. “Naturally not in the near future, since we are starting from zero in the U.S.,” he said.

At the annual press conference, Matthias Mueller, VW Group CEO, said the company will radically transform itself.

“2016 will be a year of transition for Volkswagen. It will also be the year in which we accelerate the transformation and lay the foundations for a new, better Volkswagen,” Mueller said.

“Our goal is to make the Volkswagen Group more efficient and faster, more entrepreneurial and courageous, more sustainable and technologically more progressive. That is without question an enormous task, but we are making good progress,” Mueller said, without saying how.

Mueller also talked about embracing the digital world and mobility services, and opening up to more partnerships. A new strategic plan is expected before the summer.

Action please
Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) at the University of Duisburg-Essen liked the ideas expressed by Mueller, but wanted some action.

“Warm words yes but we don’t see any specific actions to show VW is chasing in the direction where Tesla and Google are going at the moment. VW still seems to be in the old world and making nice comments about the new one. We have to see what it will do and what the program will be,” Dudenhoeffer said.

“At the moment it has no car sharing system or anything comparable to Uber. GM has bought Lyft. VW has done nothing in that area. Really nothing, but it’s not alone, some of the other traditional car manufacturers haven’t done much either,” he said.

The postponed financial results for 2015 showed VW’s biggest ever net loss of €1.6 billion. The VW brand accounted for 50 per cent of overall revenue, but an operating margin of two per cent, compared with 8.8 per cent at Audi and 15.8 per cent at Porsche. The previous week VW raised the amount it had set aside for dieselgate to €16.2 billion.

Investors do indeed dream of the day when VW becomes more entrepreneurial and courageous. But that would mean the end of control by trade unions and politicians from Lower Saxony of which there is no realistic prospect.

VW shareholders have been demoralised since news broke September 18 that the company cheated to defeat U.S. environmental rules which limited noxious emissions from diesel engines. This concerned around 500,000 diesel engines in the U.S. The scandal then moved on to the rest of the world with 11 million engines involved in cheating not only diesel emissions, but also fuel economy claims.

The Wall Street Journal’s “Heard on the Street” column isn’t expecting much action.

“Hastening change at Volkswagen comes with unique challenges: a tainted brand in the U.S. and inflexible governance,” columnist Stephen Wilmot said.

The union controls half the votes on the ruling supervisory board and has a veto over plant closures. The German state of Lower Saxony has two seats on the board too. VW’s performance has been anaemic in the U.S. for years, with plenty of promises that change is going to happen tomorrow, which never comes.

Last year’s crisis still meant that employee numbers rose three per cent while sales volumes fell two per cent.

Investment researcher Evercore ISI though said VW’s known problems present a big chance because its inefficiencies present huge possibilities.

Solid job
“Management did a solid job presenting 2015 financials and answering journalist and analyst/investor questions. As expected, only limited additional information was provided on the U.S. diesel situation. We continue to believe that VW can turn the VW brand around and hence stick to our constructive view on the stock,” said Evercore ISI analyst Arndt Ellinghorst.

And maybe the claims for resuscitation in the U.S. have a bit more resonance this time, as the U.S. Chattanooga factory gets ready to make the new mid-size SUV, and the long-wheel base Tiguan arrives from Mexico next year.

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