Benefits Of MQB Said To Be Over-Stated.
VW Acknowledges Need For Cost Control, But Most Investors Untroubled.
Despite Volkswagen’s powerful profit-making record even during Europe’s recession, its investors seem mightily skittish and it doesn’t take much of a rumour to send them scurrying for the exits.
Germany’s Manager Magazin, quoting company sources, reported that VW was at risk of missing its 2015 profit targets if it didn’t step up efforts to cut costs. The shares promptly dived nearly 2.5 per cent on the Frankfurt stock exchange after the news in late September, and haven’t recovered since.
VW denied the report, saying it was sticking with its forecasts. Later, according to Bloomberg, VW said it was stepping up its efforts to cut costs at its namesake brand, with a need for more belt-tightening over the coming months at all levels, in all departments, in all regions and at all plants.
VW has massive ambitions, including becoming the world’s biggest auto manufacturer by 2018 with the stated aim of 10 million annual sales, and a profit margin across all the brands of eight per cent, compared with six per cent in 2012.
Manager Magazin had said VW was having problems with its new production engineering system called by its acronym in German of MQB. According to Morgan Stanley, VW was spending up to $70 billion over the next four years on the system. VW has claimed MQB will save it big money and time in the production process.
Some investment bankers doubt MQB will make much difference.
“It (VW) has over-promised on savings related to the MQB programme and has created market expectations that will be difficult to fulfil. We’ve long argued that MQB was over-hyped, with claims of 20 per cent savings,” said Bernstein Research analyst Max Warburton.
Probably has a problem
“We believe VW may have a cost problem with MQB. Which means that despite other positives – China, Audi and Porsche – it probably has a problem with 2014 and 2015 expectations,” Warburton said.
Other investment bankers were more sanguine.
During press presentations at the Frankfurt Car Show last month, Deutsche Bank said it liked what it called VW’s caution, which was also an internal message to its staff to avoid hubris and overspend.
In a report, Deutsche Bank said the current spat was a reminder of past VW problems with cost and budget over-runs.
“Our take is that it increasingly appears that senior management tries to make sure that a repeat of old habits is avoided,” said Deutsche Bank’s Jochen Gehrke. Later, Deutsche Bank pointed to news that VW was negotiating 17 extra shifts for its main Wolfsburg plant amid solid demand for the Golf and Tiguan.
“This is clearly a good sign for the second half as Wolfsburg remains to be the biggest fixed cost block inside the VW universe in need of good utilization levels,” Gehrke said.
Berenberg Bank also dismissed the report.
Nothing wrong
“We are convinced nothing is wrong,” said Berenberg’s Adam Hull.
Hull pointed out that the main thrust of the Manager Magazin report concerned the VW brand and had little to say about Audi, which produces the lion’s share of VW profits. Hull said he expects VW shares to accelerate over the coming 12 months, and the company didn’t have any specific targets for 2014 or 2015 anyway.
“If it actually had specific 2014 and 2015 targets that could be reiterated, the impact of the denial of the article would be greater,” Hull said.
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