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Volkswagen Cuts Spending, Baulks At Dumping Phaeton

Volkswagen Cuts Spending, Baulks At Dumping Phaeton.

“new Phaeton might be based on the engineering of the already produced new Audi A8, so losses per car should be cut drastically”

Beleaguered Volkswagen announced spending cuts of $1.1 billion, said it plans to upgrade its diesel emissions technology and embrace electrification, but fell short of radical action that might have reassured investors nursing huge losses after the “dieselgate” scandal broke last month.

The headline-grabbing news Tuesday that VW will make an all-electric version of its flagship Phaeton sedan was probably the most disappointing. The Phaeton, brainchild of former chairman Ferdinand Piech, was not popular with investors who saw it as a vanity project which symbolized VW’s obsession with sales and technology at the expense of profits. If VW had decided not to renew the Phaeton, that would have been a powerful message to investors that VW was acknowledging past faults and was ready to change direction. Investors must be asking, why not make a Passat sedan all-electric?

The Phaeton project sought to produce a premium sedan to compete with products like the Mercedes S class and BMW 7 series as though VW didn’t already own Audi, which makes the flagship A8 limousine. In a report a year ago, Bernstein Research said the Phaeton was third in the all-time race to be the biggest loss making car of all time, at $2.7 billion or $38,000 a car. The “competition” was won by Mercedes with its Smart car, the first iteration of which lost $4.6 billion or $6,100 a car.

However, reports out of VW’s home-town Wolfsburg suggest that the new Phaeton might be based on the engineering of the already produced new Audi A8, so losses per car should be cut drastically.

Other projects favoured to be axed included the Bugatti, which makes a few 200 mph supercars every year and loses heavily. But today’s announcement was all about the VW brand, and presented by VW brand CEO Herbert Diess. Other cuts may be coming, such as selling off truck brands, or disposing of automotive retailer Porsche Salzburg.

VW today said it will increase production of long-range plug-in hybrids, and electric vehicles with a range of up to 190 miles. Cost cutting would also be speeded up and the VW brand strategy reappraised.

All diesels would now use Selective Catalytic Reduction (SCR) and AdBlue technology in Europe and North America as soon as possible. VW engines implicated in the “defeat” EPA scandal used so-called NOx traps to cut nitrogen oxide emissions rather than the more expensive SCR technology. These were all small cars including the VW Golf, Audi A3, SEAT Leon and Skoda Octavia. All cars bigger than this, like the VW Passat, VW Tiguan SUV and Audi A4 already use SCR technology.

A year ago Volkswagen announced a plan to cut costs and renew focus on profits because revenues had risen 30 per cent in five years while profits remained stubbornly flat. Toyota of Japan sells roughly the same amount of vehicles but generates close to a 10 per cent profit margin while spending roughly half as much on research and development as VW. VW’s long-term profit target is close to eight per cent.

Overtake GM
Then, VW set itself some big targets. It planned to overtake General Motors and Toyota to be the biggest in the world by 2018 in terms of sales. Then CEO Martin Winterkorn announced a plan to cut costs by $5.7 billion a year from 2017. By 2018, VW’s group pre-tax profit goal was at least eight per cent, and six per cent for its own troubled VW name-sake brand, which is currently struggling to stay in the black.

VW has gone quiet on these targets since the scandal broke.

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