Volkswagen Brand Profit Sinks 86 Percent; Company Thanks God for All Those Other Brands
First-quarter earnings just released by Volkswagen Group show a massive hit to the company’s namesake brand, all thanks to fallout from the diesel emissions scandal.
Profit at Volkswagen passenger cars fell 86 percent to 73 million euros ($81 million), down from 514 million euros last year. That plunge leaves the brand with a nano particle-thin operating margin of 0.3 percent.
Still, the scandal isn’t a killing blow for the company. Why? Investment advisers aren’t lying when they say diversity is key to weathering shocks.
Overall operating profit was up 3.4 percent at Volkswagen Group (3.44 billion euros), despite revenue falling by the same amount, to 51 billion euros. The sound you hear is a corporate group hug for the money-making Porsche, Audi and Skoda brands.
Porsche and Skoda profits rose sharply over last year’s results, while Audi maintained its healthy state, despite flat sales. Also helping the company were currency changes that bolstered the $18.2 billion set aside to deal with the cost of the scandal.
Volkswagen CEO Matthias Mueller praised the parts of his company that weren’t Volkswagen, saying the company’s broad portfolio will help what promises to be a bad, bad year.
“In light of the wide range of challenges we are currently facing, we are satisfied overall with the start we have made to what will undoubtedly be a demanding fiscal year 2016,” Mueller said in a release. “In the first quarter, we once again managed to limit the economic effects of the diesel issue and achieve respectable results under difficult conditions.”
Over the course of 2016, the company expects revenues to decline by as much as five percent.
[Sources: Reuters, Bloomberg] [Image: ©2015 Mark Stevenson/The Truth About Cars]
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I was expecting some deals on GTIs, but even with the $1,000 manufacturer incentive, most dealerships around here seem to be clinging to the MSRP like a liferaft. Maybe the GTI/Golf R are the only VWs that managed to weather the scandal simply because of cult status and/or consumers who want that specific car regardless (like me), so the dealers are making hay where they can? But the Autobahn with DSG and performance package, which seems to be the only trim level that you can get the PP with these days, and which stickered for almost $36,000, was a non-negotiable $1,000 below sticker (thanks to incentive). They simply would not even consider anything less than $35,765. I walked and no one even bothered to send so much as an email to get me back into the dealership. Also worth noting the VW dealership offered $2,500 less on my trade than a local Honda offered a month prior, which even then was almost $2,000 less than Edmunds TMV for trade-in. It's almost like they'r enot even trying, at least in Central Texas.
Knowing VW, the income decrease at the VW brand is likely due to accounting tricks. VW did previously announce that they were binning all recall related costs to that brand only; if they followed through, the capital reserves they put on the side to pay for the debacle may account for the plunge in earnings. It would be more instructive to see what happened to their sales.