2011 Year in Review: Volkswagen

Highlights of the year’s major events affecting the Volkswagen Group:

• Volkswagen begins 2011 by tying up the loose ends on a cliffhanger, announcing with great fanfare at January’s North American International Auto Show that its all-new replacement for the Passat midsize sedan in the U.S. will be called the Passat.

The German auto maker had kept the name under close guard for nearly two years before the new model’s reveal in Detroit. By then, the car already was in pilot production at VW’s new Chattanooga, TN, assembly plant, prior to its fall-2011 sales launch.

• Wolfgang Porsche, chairman of Porsche’s supervisory board, declares in late January his company’s planned merger with Volkswagen is “on the right track.” He soon would have to eat his words after the move was put on hold as a result of a widening German investigation over potential financial irregularities surrounding the deal and lawsuits filed in the U.S. attempting to block the merger.

In September, VW concludes it will not be able to absorb Porsche before year’s end. That move is still firmly in the plans, though how and when it will be achieved is unclear.

One option would be to exercise a put-call, but the earliest that could be executed tax-free is August 2014, says Porsche CEO Matthias Mueller.

• Ground is broken on a new engine plant in Silao, Mexico. It will have capacity for 330,000 engines annually and supply VW assembly plants in Puebla, Mexico, and Chattanooga beginning in 2013. VW doesn’t detail the engines that will be produced but says it is spending $550 million on the program.

Up! in production at Bratislava plant.

• The Passat marketing campaign kicks off in the U.S. with a Super Bowl ad featuring a lighthearted takeoff on the movie “Star Wars,” featuring a boy dressed as Darth Vader who believes he possesses “the Force” to start his father’s car. The ad proves a viral hit, racking up more than 36 million views on the Internet and drawing interest from around the world.

• A new labor deal with trade unions signed in February gives some 100,000 German workers a 3.2% pay hike, plus a one-time bonus payout of at least E500 ($689). The contract runs from May 1, 2011, through Sept. 30, 2012.

• Plans to invest E1 billion ($1.4 billion) in Volkswagen’s Slovak operation are revealed in February. The investment is intended to boost both vehicle and parts production at the Bratislava plant.

The investment clears the way for the launch of VW’s New Small Family minicar range, which would boost factory output 43% to 400,000 vehicles per year.

The first of the new models, the VW Up!, would debut later in the year at the Frankfurt auto show. Also planned is the SEAT Mii, to rollout in Spain later in the year, and Skoda Citigo, due in December.

• VW signs a memorandum of understanding with GAZ in February to explore potential assembly of Volkswagen and Skoda models at the Russian auto maker’s plant in Nizhniy Novgorod.

• Chairman Ferdinand Piech raises the ire of Fiat CEO Sergio Marchionne when he suggests Fiat’s Alfa brand would be better off in VW’s hands. Offering to buy Alfa during interaction with the automotive press, Piech says he could pump up sales of the Italian premium brand to 400,000 cars per year. After some back and forth jabs, Marchionne puts the issue to rest, promising Alfa is not for sale – particularly to VW.

New Beetle bowed at New York auto show in April.

• A new microbus concept is rolled out at the Geneva auto show in March, and this time the model appears headed for production. VW shows the minivan with electric drive, but acknowledges it also is designed to accommodate conventional powertrains.

• Spanish arm SEAT declares a sales target of 800,000 units annually by 2018, with a return-on-investment goal of 15%.

• VW’s new ʼ11 model Jetta suffers a recall in March, due to defective wiring in the horn that could cause the car to stall. Some 71,043 units are affected.

• Plans to step up activity in Malaysia with partner DRB-Hicom are revealed in April. VW is targeting production of more than 30,000 vehicles annually at DRB-Hicom’s Pekan plant by 2018. Output would include the Passat and Jetta models, expected to be launched later in the year, and a third model to join the mix later. VW says it will shoot for 40% local content by 2014.

• Construction gets under way in April for a new $25 million vehicle test center in Oxnard, CA, expected to be completed in 2012. The 4.3-acre (1.7-ha) complex will replace VW’s current Westlake Village, CA, lab, which is more than 20 years old.

• The all-new ʼ12 model Beetle makes its debut at the New York auto show. Less rounded, sportier and lacking a flower vase, the new version of the iconic sedan is expected to offer greater appeal to male buyers. It would hit the U.S. market in the third quarter and make an appearance in European showrooms in the fourth quarter. Its Asian-market bow is slated for February 2012.

• VW issues the first in a string of positive financial reports for the year, announcing a first-quarter operating profit of E2.9 billion ($4.0 billion), well ahead of consensus estimates of E2.2 billion ($3.0 billion).

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It later reports first-half operating profits more than doubled year-earlier results to E6.1 billion ($8.4 billion). That is followed by record net profits of E7.15 billion ($9.9 billion) for the first nine months of the year, surpassing earnings for all of 2010.

• A new deal with partner FAW Group revealed in May will give birth to a new brand, Kaili, for electric vehicles the two will build together in China. There’s no word on when production will launch. A similar deal concerning EVs is struck with VW’s other Chinese partner, SAIC Motor later in the year. Both come at the prompting of China’s central government, which is pressuring global auto makers to provide EV technology to local partners.

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• Audi gets the all-clear for a E900 million ($1.2 billion) expansion of its Gyor, Hungary, car plant in June, after a local environmental group withdraws opposition to the plan. Audi says the investment will boost production to 125,000 vehicles per year in 2013.

• Skoda’s Yeti compact cross/utility proves a solid hit, with the Czech arm announcing in June it would double production. Initial plans were to sell 50,000 units annually throughout Europe, but officials now target 100,000 per year.

• CEO Martin Winterkorn gets under General Motors’ skin, floating the rumor the U.S. auto maker is looking to sell its Adam Opel arm in Germany. An initially silent GM fuels media chatter, but eventually CEO Dan Akerson denies the operation is for sale and GM points the finger at Winterkorn for demonstrating “a regrettable pattern of fanning speculation.”

• Audi scraps its 2014 sales target of 1.5 million vehicles, saying it will reach that mark a year earlier than planned. A new goal of 2 million vehicles annually by 2020 and a profit margin of 8%-10% is set. Part of that will come from China, where Audi reveals in July it will seek to double capacity to 700,000 units by 2015.

• A squabble with Suzuki takes center stage in July, after the Japanese auto maker chafes at the way VW characterizes their partnership in an annual report. The tiff would escalate in the following weeks, with VW threatening a total takeover of Suzuki and the Japanese auto maker calling for the German company to sell its stake in Suzuki immediately.

A deadline of Sept. 30 is set by Suzuki to resolve the dispute, but the war of words continues into October, as legal action is threatened by both sides. Late in the month, a VW official tells a German magazine the auto maker is “prepared to reach out” to Suzuki, but will not sell its 20% holding.

• As the year passed the midpoint, Volkswagen emerges as a strong contender for the crown as the world’s top seller, potentially putting the auto maker well ahead of its goal of attaining that title by 2018. WardsAuto data through July shows VW nearly 700,000 units ahead of Toyota, trailing top-ranked General Motors by less than 400,000.

• Formula 1 racing could be in VW’s future, the head of the auto maker’s motorsports operations tells a German magazine, but not before 2018. He doesn’t indicate which of the company’s myriad brands might make the move.

• A new labor deal inked in August provides a 6% wage hike for workers at the Puebla, Mexico, plant, avoiding a strike.

• A third shift will be added at the Porsche plant in Leipzig, Germany, beginning January 2012, officials reveal. The move will increase daily production to 600 units and comes ahead of the launch of the new Cajun cross/utility vehicle in 2013. The plant currently builds the Cayenne and Panamera for Porsche.

• Skoda pulls back the covers on a sixth model, the MissionL, at the Frankfurt auto show. The design of the 5-door hatchback concept is said to be close to that of the production model that will launch in 2012. The new car will be positioned between the Fabia and Octavia in Skoda’s lineup.

• A perennial money-loser, Volkswagen of America says it is near the first stage of profitability in the U.S. for its VW brand. If it lands in the black in 2011, it would mark the first time since 2003. VWA CEO Jonathan Browning tells the Society of Automotive Analysts in September that his goal is for the entire VWA organization, including its Audi, Lamborghini and Bentley brands, to be profitable in 2013.

• Winterkorn reveals a capital-spending plan of E62.4 billion ($83.4 billion) in new products for 2012-2016, the largest investment package in the auto maker’s history. Property, plants and equipment will account for E49.8 billion ($68.9 billion) of the total, with 57% earmarked for Germany.