By on January 17, 2020

Herbert Diess Jetta 2017

Nokia isn’t having a good day, what with Volkswagen CEO Herbert Diess likening it to an Edsel or Tucker. The VW chief contrasted the phone maker with sales leader Apple when discussing his company’s future, claiming VW will need to move much faster if it’s to stay at the front of the pack.

To further this goal, some things will need to move to the back burner.

As reported by Reuters, Diess laid out his plan to overhaul the automaker in the face of new challenges to top managers following a Thursday board meeting. Electrification, autonomous driving, and strict emissions standards all weigh on VW’s finances, forcing the automaker to choose which projects are most important in the near-term.

“If we continue at our current speed, it is going to be very tough,” said Diess of his goal of lifting VW’s market cap from $91 billion to $200 billion. “In summary this is probably the most difficult challenge Volkswagen has ever faced.”

Boosted productivity, reduced costs, and stable income — all the while leading the charge into electric and autonomous vehicles — is the near-future VW wants. To do it, some things will have to take a backseat.

Things like hydrogen fuel cell development, which no one believes will set the market on fire anytime soon. Things like VW’s MOIA ridesharing unit. Both hydrogen and mobility services will see their funding cut to free up cash for more important things, Diess said.

“We need to reduce our engagement and stretch it, until the prerequisites for better profitability are given,” he added.

As for real, actual cars, Diess says he wants the company to focus more on profit than volume.

“Take Bentley for example, 10,000 deliveries,” Diess said. “It would have been even more impressive if we had a margin higher than zero. If I’m totally honest, I would have preferred 5,000 deliveries and a margin of over 20 percent.”

Cost cutting and efficiency finding has become the main pastime of German automakers. Last year, VW entered into an alliance with Ford Motor Company while in search of synergies. In a bid to lower operating costs by $6.6 billion by 2023, the automaker announced the cull of up to 7,000 jobs.

At the same time, VW is readying an  electric vehicle offensive. The first ID-badged model built on the automaker’s dedicated MEB architecture rolled out in Europe in late 2019, to be followed by a slew of models spanning the bodystyle gamut.

[Image: Volkswagen]

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30 Comments on “Volkswagen Boss: Move Faster, or Go the Way of a Second-rate Phone Maker...”


  • avatar
    Steve203

    When the diesel scandal broke, I had hopes VAG would get rid of the vanity brands Piëch had accumulated: Bugatti, Lamborghini, Ducati, Bentley, and rationalize the overlapping mass market brands, to cut costs. None of that seems to have happened, yet.

    >>… he wants the company to focus more on profit than volume.<<

    That has been the mantra at the big three too: try to shrink the company to maximize short term profits. That is Welchism writ large. Right now, we are seeing what Welchism has done to Boeing, as well as GE.

    Personally, if VW isn't going to offer the Golf hatch or wagon in the US, I would love to see the Jetta get the Skoda Scala treatment from the B pillar back. Call it the Jetta Spaceback. But, no, that would be a niche market, and Welchism doesn't chase niche markets.

  • avatar
    Fred

    If there is no margin on a Bentley why not just raise the price $10000. Those that can afford it won’t notice.

  • avatar
    ajla

    “ ‘Take Bentley for example, 10,000 deliveries,” Diess said. ‘It would have been even more impressive if we had a margin higher than zero.’ ”

    A claimed *zero* margin on Bentleys when they generally go new for $180k+ and share plenty of parts with other things in the VW empire? That’s either a lie or a complete failure on VAG’s part.

    • 0 avatar

      They’ve proved in past they’re completely okay with forging numbers.

    • 0 avatar
      ToolGuy

      There is gross margin (revenue less variable cost) and net margin (all-in including amortization of fixed cost).

      500 Mulsanne models (2018 production) times ~$350K Revenue means you have $175M annually to cover *everything* for that model:
      – Dealer margin
      – Materials (including 16 cattle hides per vehicle)
      – Supplier stampings, supplier tooling for those stampings
      – Engine and transmission parts and tooling
      – Heinous labor cost (~500 man-hours per vehicle, maybe $25M right there)
      – Overhead/factory depreciation/amortization
      – Engineering, G&A, Marketing
      – Shipping, Warranty, 16-inch brake rotors, etc. etc. etc. etc.

      Gross margin on a Mulsanne is probably pretty healthy. It’s the fixed cost that kills you (with such relatively low volume) – hence the low net margin.

      When an automotive CEO divulges potentially-embarrassing information, don’t automatically assume they are lying.

      • 0 avatar
        conundrum

        Not that I’d expect TTAC to have noticed, but Bentley has been losing a lot of money past two years, particularly in 2018, and the problems started before that. I can’t be bothered looking up all the articles TTAC staff should have researched, so here’s one from August 2018.

        https://www.autoblog.com/2018/08/21/bentley-new-ceo-says-no-sports-cars/

        In all of 2018, they lost 288 Million euros:

        https://europe.autonews.com/automakers/bentley-returns-profit-sales-rise-2019

        No lying involved — this has all been reported before in the business press. From what I recall, VW corporate told Bentley to shape up about two years ago. So I find the usual uninformed comments here about par for the course.

        • 0 avatar
          Steve203

          >>Not that I’d expect TTAC to have noticed, but Bentley has been losing a lot of money past two years, <<

          Bentley is the only vanity brand they even report numbers for. They don't break out Bugatti, Lamborghini or Ducati. Marchionne said words to the effect "Bugatti is the biggest waste of capital I have ever seen". I figure he was probably right.

  • avatar
    PandaBear

    Nobody should be wasting money on mobility services or hydrogen fuel cell. VW should at least pick a way forward to be simple and reliable in addition to EV. Nobody expect them to be Toyota overnight but at least not any worse than Nissan (which is a pretty sad and low bar these days).

  • avatar
    dal20402

    Trying to cost-cut your luxury brands to profitability is like punching yourself in the face to reduce the pain from a stubbed toe.

    The lesson of Steve Jobs’s career isn’t really about acting like an a$shole or designing buttonless products. It’s about ignoring the brayers of Wall Street. Apple grew into the biggest company in the world on his watch because he focused on executing a long-term vision of building the business he wanted to run, and spending what he had to to get there. He was constantly besieged by demands to cut costs and share profits and he just gave them the hand. Instead, he focused on what he thought would drive the customers.

    There is a huge unfilled niche for a luxury carmaker that takes the same approach. There is a sea of capital drowning the world’s richest 1%. Stop all the decontenting and engineer the best car you know how (especially with respect to interior and styling details), charge 1/3 more for it than the other brands, and watch the buyers throw some of that capital at you. Not a single carmaker, not even at the extreme high end, is using this approach today. Get in a Bentley and you will be able to find visible cost-cutting all over the place. Get in a BMW and you might as well be in a Honda.

    • 0 avatar
      ajla

      “Not a single carmaker, not even at the extreme high end, is using this approach today.”

      Ferrari gets pretty close and their financials are quite healthy.

      • 0 avatar
        dal20402

        I suppose I was thinking only about carmakers that make types of cars I would have the slightest interest in buying. You’re right, for people who find supercars of interest.

    • 0 avatar
      bkojote

      In all seriousness, what about Tesla?
      They’re in a league of their own right now- they have by far the best control over every part of the ownership experience from purchase to software to infrastructure. Design wise too you gotta admit they have some serious balls.

      Having driven a Model 3 and then going back to an Audi or MB it’s like going back to a Windows Mobile phone after using the iPhone. If you were to read the doomsayers on Tesla they sound like Steve Ballmer laughing it off for lacking Microsoft Excel.

      • 0 avatar
        dal20402

        They make very good electric powertrains, but the interiors and exteriors are cost-cut all to hell in obvious ways. They will tell you honestly that they are trying to meet specific price points for even the S and X.

        I would love to own a car where I can’t point out anything and say “they did it this way because it was cheaper.” The closest I’ve ever been to that was my LS 460… and it wasn’t at all close.

      • 0 avatar
        indi500fan

        Tesla is in a league of their own.
        America’s largest non-profit manufacturing company.

    • 0 avatar
      HotPotato

      Screw Wall Street and just make the best car you know how? My god, man, you’re not allowed to praise Tesla here. Not even accidentally.

  • avatar
    Lokki

    This guy makes my retired butt twitch. Seen his type before… Promoted because he spins a good yarn. Has been on several projects and always got promoted out of town before the problems with his whimsical choices on the project popped out. Selected here because all the logical choices have been tainted by association with the scandal and the board doesn’t really know him. Has a nice resume though and dresses just different enough to look bold.

    We used to call this kind of guy “The Music Man”. For anyone not old enough to remember the movie:

    ”… Hill plans to con the citizens of River City into paying him to create a boys’ marching band, including instruments, uniforms, and music instruction books. He convinces them that a boys’ marching band is the only way to keep the boys of the town out of trouble, and begins collecting their money. Once he has collected the money… he will hop the next train out of town, leaving them without their money or a band.”

    Look at this guy:

    “We need to reduce our engagement and stretch it, until the prerequisites for better profitability are given,” he added.”

    WHAT THE HELL DOES THAT EVEN MEAN?

    I have cleaned up after several of these guy have been ‘retired’ after finally getting caught with the bag.

    What he is talking about here sounds exactly like GM – A company with too many lines and already known for sometimes questionable quality undertakes a crash project to reinvent the company’s products, using revolutionary technology. At the same time, he is going to squeeze costs. Has that combination ever been successful? He might heed the lessons of the Chevy Citation…. but he won’t.

    Rant over.

  • avatar
    MoDo

    Or be stupid, invest all your eggs in one basket and go broke when people realize they don’t want an electric car. Lets face it, all but Teslas have failed. Automakers have a right to be skeptical, ole dieselgate doesn’t have a choice.

  • avatar
    schmitt trigger

    ***“We need to reduce our engagement and stretch it, until the prerequisites for better profitability are given,” he added.”

    WHAT THE HELL DOES THAT EVEN MEAN?****

    This is a complex phrase, used by that obscure corporate-speak language.
    I’ll give it my best shot at translation, although don’t get upset at me if I fail to accurately translate it, OK?

    Translation:
    We’ll follow GM’s footsteps in debasing our products, praying that the ignorant car-buying public does not notice, and willingly pay Cadillac prices for a perked-up Chevy.

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