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Company overview

The spring of 2004 saw the launch of Volkswagen Group's 'ForMotion' programme, a performance improvement scheme aimed at maintaining the company's position as number-one in Europe. ForMotion aimed to be tough on all projects, globally, past and present. But have targets been met, asks Nargess Shahmanesh-Banks.

VAG boss, Dr. Bernd Pischetsrieder said back in 2004 that he wished to save around €1 bn ($1.2 bn) by the end of 2004, increasing to a further €2 bn ($2.5 bn) by the completion of this year. Fast forward to 2005 and despite unfavourable economic conditions the previous year, the company reported that the targets set by ForMotion had been achieved. The company had achieved improvements of €1.6 bn ($2 bn), higher than the big boss had predicted.

"This means that the Group has made significant progress towards improving its competitiveness", said Pischetsrieder, at an annual meeting at the headquarters in Wolfsburg, Germany last month. The new model initiative, with eleven market launches in the passenger cars segment, saw VAG further increase its deliveries to customers year-on-year to approximately 5.079 million vehicles.

Chief financial officer, Hans Dieter Pötsch, said that vehicle sales grew by 2.5 per cent in 2004, and VW increased sales revenue by almost 5 per cent. The further appreciation of the euro adversely affected revenue growth, but consolidated sales revenue increased by € 4.2 bn ($5.4 bn) to €89 mn ($115 mn).

In contrast, the year-on-year movements in euro exchange rates, already at high levels in 2003, reduced sales revenue by € 1.1 bn ($1.4 bn). The fact that gross profit before special items, which declined by 3.1 per cent year-on-year, does not reflect this positive revenue growth is due to the disproportionate increase in the cost of sales by a good 6 percent or €4.5 bn ($5.8 bn).

Holding on to key markets

With around 5 million vehicles were delivered to customers in 2004, close to the figures issued last year, VAG achieved an 11.5 per cent share of the global market. Of this, the VW Group accounted for 3.5 million vehicles, the Audi Group just over 1 million and commercial vehicles a little less than 334,000.

Over 2.7 million vehicles were delivered to Western Europe in 2004, where Germany remains the largest single market. In the rest of Europe, the number of vehicles delivered grew a little; Asia-Pacific bought less VAG cars than the previous year as did the US although South America and Africa saw an increase in imports from 425,750 to 533,186.

In the first two months of 2005, VAG delivered approximately 687,000 vehicles to customers worldwide, 0.5 per cent fewer than in the same period of 2004. While deliveries in China declined by 33,000 units year-on-year, sales in all other markets at the beginning of the year increased by approximately 30,000 vehicles.

VAG was one of the first carmakers to infiltrate the Chinese markets, yet in the last couple of years, this future goldmine has proved to be not so loyal to the Group. The Chinese government has taken steps to cool economic growth and prices for commodities and materials, such as oil and especially steel have been on the increase there.

The European automotive leader is working intensively to reorient its position in China. This means focusing in particular on sharper brand positioning, more effective distribution networks and a product program that is better tailored to Chinese requirements. If the prediction that the Chinese market will reach as much as 7 million by 2013 are to be believed, then it may be worth VAG's while to keep a strong presence in the region.

For 2005, VAG aims to increase its worldwide deliveries to customers on the basis of over 20 new products and product variants to be launched in the markets this year. However, this will only be clearly reflected in unit sales volumes in the second half of 2005. Operating profit after special items will improve this year, although the extent of this improvement depends on external factors that cannot be predicted at present.

"But thanks to new products, to ForMotion and to the enhanced performance of our Group, the situation will improve", said the big boss, adding: "We will systematically drive forward this corporate optimisation in the coming years as well."