VW Investors Await Decisions On Leadership, Structure.
“Some may believe the potential for a restructuring story is improving. We think improvement remains some time away”
Volkswagen investors are in limbo awaiting questions about key leadership issues as rumours swirl and the stock price sinks.
According to German business daily Handelsblatt, VW is considering a decentralised system with four holding companies running the 12 brands. This would group VW, Skoda and SEAT mass market brands, Audi, Lamborghini and Ducati as another group. Porsche, Bentley and Bugatti would form another group, while VW Commercial vehicles would join Scania and MAN trucks. Meanwhile another perennial rumour re-emerged that VW planned to launch a family of low cost budget cars in China and possibly elsewhere, according to an interview with CEO Martin Winterkorn in the Bild am Sonntag newspaper.
Morgan Stanley analyst Harald Hendrikse pointed to VW Group sales deteriorating in China, while the European recovery seemed fragile.
“Some may believe the potential for a restructuring story is improving. We think improvement remains some time away,” Hendrikse said in a report.
Investment researcher Evercore ISI said there is too much uncertainty for investors concerning –
- Who will be the future chairman.
- The future CEO (Winterkorn’s contract runs out at the end of next year).
- Organisational structure and potential need for cost restructuring.
“All this can seriously lame an organisation and impact customers brand perception. The sooner VW creates facts, the better,” said Evercore ISI analyst Arndt Ellinghorst.
Morgan Stanley’s Hendrikse liked the reported decentralised management system, yet to be confirmed by VW, with some misgivings.
“We see potential here in terms of capital efficiency, rather than absolute EBIT upside, and we would warn that any capital efficiency actions would have some offsetting negative impact on growth. Although we recognise the potential for value creation form any capital structure changes, we do not believe these are likely,” Hendrikse said.
Evercore ISI’s Ellinghorst said a lot of VW’s problems are related to high production costs in Germany where most of its vehicle and component production takes place.
“Other issues are of course the underperforming U.S. and its exceptionally high CAPEX and R&D intensity. The regional exposure to Latin America and Russia are currently creating headwinds but should be seen as good assets in the medium term,” Ellinghorst said.
Meanwhile new VW brand boss Herbert Diess, recruited from BMW, took the reins on July 1.