There were sharp intakes of breath at GM and Toyota when VW announced, last week, that it would invest a record $86 billion over five years “to underpin its goal of becoming the world’s largest carmaker.”
That is a lot of jack, Jack, and $68 billion of it is going to plants, properties and equipment (over half of that in Germany), plus $15.6 billion to capitalized development. And, you can be sure, there will be more joint investment in China.
The company’s statement makes clear that its aims are international: to become “the world’s best automobile manufacturer in economic and ecological terms,” as Prof.-Dr.-CEO Martin Winterkorn put it in the press release. See the great man posing above.
“Ve are alzo going to rule ze vorldt!” No, he didn’t say that, but the key in terms of markets, as you can imagine, will be China. Plans are to expand the company’s 62 factories around the world to about 70; 11 of these will be in China—adding nearly $19 billion in new production joint ventures.
Bertel Schmitt points out that in the 2008 crash, with U.S. sales dropping like a stone, VW had major operations and sales in China—and kept on spending. They primed the pump, in other words, which is now going to be primed still further.
The company has done much to develop new technology for engines, hybrids, drivetrains. It has done too little to improve product quality and reliability. It was smart to cut costs on the Jetta, as it turns out. Let’s see how much of the upcoming Big Money goes to improve such customer-centric areas as better assembly and service.
The economy will have a big say in how successful these plans are. Some European automakers like Sergio Marchionne are very worried, given the ongoing credit crisis and the political games being played.
Others, like Marty, are more sanguine. He reportedly reduced his prediction for global car market volume from 66 million in 2012 to 64 million, which “still represents growth over 2011,” said the Dr. Prof.
Though the global auto market is still relatively strong in the face of all the economic bad news, that situation simply cannot continue if the bad news continues—or gets worse. The next collapse, if it comes, will make 2008 look like a mild recession.
Does VW’s $86-billion investment make it likely to achieve its goal of becoming the world’s largest car company by 2018?