MQB Costs May Put The Squeeze On VW Profit Goals
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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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....
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.
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.
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.