By on September 20, 2013

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A German business publication published a report this week claiming that Volkswagen won’t meet its 2015 profit goals, in part due to the costs associated with the new MQB modular platform.

Manager Magazin said that MQB’s costs (pegged by Morgan Stanley at around $70 billion), as well as decreased profitability of the next-generation Touran minivan and Tiguan SUV would reduce VW Group’s overall profits. VW’s CFO Hans Dieter Poetsch is also said to be looking to cut costs by as much as 1,000 euro per vehicle.

Volkswagen released a statement refuting the claims of Manager Magazin, stating

The speculation in the latest Manager Magazin article is without any foundation. The suggested impression that Volkswagen does not stick to its targets any more is wrong. Volkswagen Aktiengesellschaft remains fully committed to its statements on the future business development of the Group. This was stated by the Volkswagen Group on Thursday.

 

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31 Comments on “MQB Costs May Put The Squeeze On VW Profit Goals...”


  • avatar
    jz78817

    But… but… Bertel said that MQB was the solution to everything!

  • avatar

    In his book The Decline and Fall of the American Auto Industry, Brock Yates explained that GM’s horrible J-car was problematical partially because it used previously developed components from their larger X-car in order to save money. This made the J-car heavy and therefore an underwhelming performer.

    How do they solve problems like this with universal platform designs like MQB?

    D

    • 0 avatar
      KixStart

      The only thing that made the J-Car an underwhelming performer was the 68hp carbureted engine. A fuel-injected (even TBI) OHC engine of over 80hp would have solved that problem. I don’t even remember any torque steer (could have been due to the lack of torque).

      It handled pretty well, felt very solid, had lots of interior room and got very good fuel economy.

    • 0 avatar
      Brian P

      The modular construction arrangement doesn’t necessarily mean that the same parts will be used in every vehicle. It mostly means that certain installation dimensions are standardized.

      For example, take a MacPherson strut. The connection points to the lower control arms, brake calipers, and upper strut mount are standardized. That doesn’t mean a Passat will be stuck with the same spring rates and damping rates that a Polo uses – although you might be able to interchange them after the fact. Likewise, just because that lower control arm has standardized attachment dimensions doesn’t mean that you can’t have a light-duty and heavy-duty version of that part.

      If anything, this strategy will make it easier for the manufacturer and the aftermarket to make custom, tailored, low-volume versions of each vehicle, because you can swap components and assemblies between different vehicles.

      The GM J-cars sucked because they sucked, not because they shared parts. The parts that they shared sucked in the J-cars because they sucked in the X-cars. There was a lot less refinement built in than there was in, say, a Honda of the same era.

  • avatar
    TonyJZX

    how does MQB cost $70 billion?

    that’s the cost of several american aircraft carriers

    jeremy clarkson said that for that kind of money you can write “germany sucks” on the moon

    • 0 avatar
      ash78

      Probably some fuzzy math around the net present value of all of the incremental costs of switching…and they could ignore the offset, which is the cost savings realized BY switching. Probably well over $70B or it never would have made sense.

      There are so many ways to mix the data.

    • 0 avatar
      Silvy_nonsense

      Several other sources read “[MQB] is being implemented over the next four years at a cost estimated by Morgan Stanley at nearly $70 billion.”

      Implementation isn’t defined, but that clearly means more than just the engineering expenses incurred developing the platform. I assume that includes all other costs associated with the switch over including testing, tooling, training and anything else you can throw at it.

      Of course, it would be more fair if Morgan Stanley had said something like “implementing MQB is estimated to cost $20 billion more (or whatever – I made that figure up) than moving forward using proven architectures.” Volkswagen would have to bring new cars to market and change factory tooling with or without MQB, and would have spent billions in the process.

      [Edit: Its possible that Morgan Stanley did make a more fair comparison and journalistic cherry picking left that out.]

  • avatar
    Beerboy12

    That’s a lot of money they spent and I find it hard to understand that they would not have considered your concerns.

  • avatar
    Beerboy12

    Is it possible that this investment VW has made will take a few years to see the return? Also the European market is still struggling. I would watch this space but not make dramatic judgement calls now.

  • avatar
    jpolicke

    TTAC linked to an interesting analysis by Bernstein Research back in April. That report merely called VW’s projected 20% savings into question, this makes it sound worse.

    VW’s statement is amusing. They can “stick to its targets” till the cows come home, doesn’t mean they’re going to meet them.

  • avatar
    Ryoku75

    I knew this and the huge recall across the clone platforms would happen, “clone cars” was a method Malaise era Detroit loved when it was struggling for money, it was their only chance at beating Japan.

    VWs attempts only make me wonder if they value any individuality in their cars.

    • 0 avatar
      Joe McKinney

      Whenever I hear the term universal car platform I think of Chrysler’s K-Car. The original K-Body architecture was stretched, shortened and given numerous reskins. It was used for sedans of every size, minivans, sporty coupes and convertibles, and wannabe luxury cars.

  • avatar
    Ryoku75

    I knew this and the huge recall across the clone platforms would happen, “clone cars” was a method Malaise era Detroit loved when it was struggling for money, it was their only chance at beating Japan.

    VWs attempts only make me wonder if they value any individuality in their cars.

  • avatar
    Fordson

    The Golf Mk6 platform was a modest update of the Mk5, which harks from 2006. Same thing with the Passat – harks from 2006.

    They needed an update anyway – you can’t just say they should avoid the costs of developing a new platform, because that was not an option.

    Going on the assumption that they could have nixed MBQ and that would have saved them $70B is not logical.

    • 0 avatar
      Silvy_nonsense

      Nixing MQB could have cost less than $70 billion or more than $70 billion. It’s not very helpful for Morgan Stanley to release that figure without comparison to the costs of moving forward using the platforms/architectures VW had in place before MQB. For all we know moving forward using the “old” stuff would have cost $100 billion to implement.

  • avatar
    vcficus

    They could save a couple billion by only making an front and rear panel for Chrysler’s minivans and have them built with German Engineering in Windsor Ontario but selling them as Volkswagons…

    Wait, did that already. Whoops!

  • avatar
    wmba

    One of the things I could never see about MQB was the incredible upfront cost of fitting that new capital machinery and tooling into several dozen VW assembly plants around the world. The VW house magazine a couple of months ago had an article on MQB at Wolfsburg. Giant machines everywhere. Now multiply by 25. Outrageous Roger Smithery.

  • avatar
    deanst

    Hard not to put this in a negative way, but if TTAC is going to be the home for recycled bloomberg news articles, at least try to put some interesting spin on them.

    Bernstein has some updated commentary on this issue – perhaps TTAC could track this down? (max.warburton@bernstein.com)

  • avatar
    suspekt

    The part that I don’t understand (and not discussed in the original peice) is how the MQB development costs (read: capital investment) will be amortized and thrown on the income statement. It would only make sense that MQB capital costs will be amortized against the production volumes that will benefit from it. This could be up to 10 years…..
    - assuming 10 years is the amortization horizon this works out to $7B in additional charges on the income statement per annum (in other words, it isn’t expensed fully by 2015 but rather evenly over the units-of-production benefitting from the investment)

    I would have thought that the annual savings from MQB would more than offset this theoretical $7B hit per annum….

    of course, we don’t know if we are talking incrementals or full costs so this is a rather pointless exercise….

  • avatar
    Dimwit

    Annnnd so? VW is in the position that it’s profitable. Very profitable. Now is the time to spend for the future. Since MQB is the logical outgrowth of their design/manufacturing strategy that they’ve been utilizing for over the last decade I can’t see where this is any surprise.
    If you look at their competition it’s quite clear. PSA is… toast. Opel is borderline. Neither can invest in strategies. They have to put out current fires. FIAT is headless it seems. Too much focus is on Chryco and the local markets are suffering. Any progress will happen later, probably much later and maybe never if a financial strategy develops first. Renault is interesting. They’re extremely quiet and might be a force if, utilizing Nissan, they develop something that might work. What it looks like to me is that they’re watching VW very closely. Ford is cutting costs and capacity like crazy. They’re bent on winning by attrition. When the market recovers they will be there, hanging on and then might do something interesting. The germans are keeping out of the fray leaving that whole market to VW.
    Unless MBQ turns into a disaster it leaves VW in the position of having current modern platforms, paid for, ready to do battle in the marketplace while everyone else is trying to keep their old stuff updated and looking good in a competitive market. How is this a problem for VW?
    Bravo VW.

  • avatar

    I wonder how Germans managed to loose the WWII. Their army of supermen and Tiger tanks were superior to poorly equipped army of Russian peasants and jalopies known as the T-34. We also know that Americans are lazy and unwilling to fight the war even with uninterrupted supplies of Coka-Cola and chewing gum.

    • 0 avatar
      Dimwit

      Most of the German tactics were built around the blitzkrieg. Fast, sharp and overwhelming with precise targeting and superior armaments. It worked until Russia and then they were in a long, drawnout fight. Their superiority dribbled away and they couldn’t get it back.

    • 0 avatar

      My point was that Germans always loose because of their stupid arrogance. Going to war with Russia anyone would know that during winter it is extremely cold there and that roads are crappy and unreliable. But still German troops were not equipped for the Russian winter and impassable roads (when it is heavily raining for a week and then frost hits next day). And as if it was not enough Hitler declares war against USA for no good reason essentially waging doomed war with two superpowers with infinite resources which Germans would never match. Japanese did not open Eastern front to support German advance towards Moscow why German should car about Japan? If Japanese did open Eastern front in summer 1941 Soviets simply would not be able to defend Moscow.

      Like Third Reich VW’s ambitions are doomed for exactly same reasons.

  • avatar
    CelticPete

    Well their friends the Japanese launched a surprise attack that mobilized the very large United States into the war. Basically the Japanese emperor was a blood thirsty idiot who ruined things for the Germans..

    If you look at the civilian casualties of WWII its not a mystery at all why the Chinese still are angry with the Japanese. They were just slaughtering the technology primitive Chinese civilians at an appalling rate for no real military reason.

    Of course the Pearl Harbor attack was probably one of the dumbest in history. Did the Japanese really think that by wiping out an Island base in the Pacific that the entire military/industrial complex of a large nation would be ruined? Dumb dumb dumb.. The Germans OTOH knew what they were doing for the most part.

    • 0 avatar
      Dimwit

      It wasn’t that dumb if it had worked. They went after the fleet. If they had got it, it would have stalled any reprisals for a year at least. During that time they had bet that their acquisitions would have been done and sued for peace with the US betting that the US would accept an apology and not a war.

      When they missed, they knew that that was the end. Basically, too complex a plan that needed to be executed perfectly brought about by greed and hubris.

    • 0 avatar
      bufguy

      The emperor was listening to his military leaders who had seen an isolationist country they didn’t think had the appetite to fight. We had backed Japan into a corner with an oil embargo that was starting to have a devastating effect on their economy. If the American carriers and fleet could be wiped out they hoped the American’s might sue for peace.
      They miscalculated


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