VW Won’t Slow New-Product Investment, Launches in Face of Economic Headwinds

The tough market environment in Europe that is dragging down Volkswagen and industry-wide vehicle sales won’t impact the German auto maker’s capital-expenditure strategy or slow the pace of new-product introductions, top executives say.

“The fundamental trend will stay intact,” Hans Dieter Pötsch, VW’s head of finance, says in a conference call to discuss first-quarter earnings results, emphasizing it is unlikely any cost-cutting programs will be introduced that would affect product investment or timing.

“What is absolutely important is you have to have a very convincing product portfolio that is able to work very competitively in the market. And that’s what we have.

“It would be wrong to do anything to threaten introduction of these products.”

It’s likely more money, not less, will be put behind product rollouts to ensure market success, Pötsch says, pegging this year’s new-vehicle launch costs at about four times typical levels.

For the quarter, VW reports it spent €2.6 billion ($3.4 billion) on research and development, including €678 million ($889 million) in capitalized investments. That compares with €2.1 billion ($2.8 billion) and €465 million ($610 million) year-ago.

“We will work the other way around to support introduction of these products, even if it produces higher costs,” Pötsch says. “For all of our brands, we have a very important position to be defended, which is the sustainable value of our product.

“So we will introduce (new models) as soon as possible, and we believe that (philosophy) underpins our position in the market.”

VW’s product assault, reportedly 60 new or updated models are in the pipeline for this year, many based on its new cost-saving MQB vehicle architecture, will give the auto maker a big competitive advantage in a European market that is down industry-wide, executives say.

“We have a full pipeline of new product to introduce shortly, so we should do whatever we can to bring (those vehicles) to market as early as possible,” Pötsch says.

Overall, VW is on track with a plan to reduce structural costs €1 billion ($1.3 billion) this year, a figure Pötsch says now appears conservative.

Despite a sluggish first quarter, the auto maker believes it remains on target to increase global vehicle sales this year from the 9.3 million units delivered in 2012. It also expects full-year revenues to rise accordingly, but competitive pricing pressures likely will limit profits to 2012 levels.

Christian Klingler, head of global sales, says VW will take a surgical approach in its marketing strategy, being careful to avoid discounting too heavily in order to keep pace with competitors.

“Our target is to be better-performing than the market,” he says. “But are we to defend our market share at any cost? I don’t think this is the policy of Volkswagen.

“It’s not just about price; it’s also about residual values. So sometimes we make choices not to damage residual values. We will keep going on that.”

Klingler says VW has kept inventories in good shape throughout the downturn in Western Europe. The auto maker’s total sales fell 6.3% in the region in the first quarter but outperformed the industry overall.

“We have been very strongly supervising the European market over the last 18 months,” he says. “We have not been surprised, either in terms of the market or in terms of our stock. We’re in great shape in terms of inventory.”

Volkswagen says operating profit fell 28% to €2.3 billion ($3.0 billion) in the first quarter from the strong year-ago period on global sales of 2.4 million vehicles, up 5.1%. Most of the gain in unit deliveries came from the acquisition of Porsche, stronger results for the SEAT brand and a big volume increase in China.

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