Volkswagen is going on the offensive in North America, challenging the likes of General Motors and Ford Motor with a wave of new sport utility vehicles and battery-powered cars.
VW’s namesake marque will expand its range of SUVs and sedans and start making electric autos in North America in 2021 in a bid to “evolve from a niche supplier” into a successful mainstream car maker in the region, the company said yesterday.
“We will be significantly stepping up our activities in the USA,” VW brand chief Herbert Diess said. “Our goals are high and our strategy is very ambitious.”
Even before the diesel scandal, Volkswagen struggled to extend its dominance in Europe and China to the US, misreading American tastes for large, affordable cars.
VW’s rollout of SUVs that appeal to American consumers came late, and the company was slow to follow up a bigger, cheaper version of the Passat sedan with other models. Now, VW plans to increase its global SUV lineup to 19 by 2020 from two currently and become profitable in North and South America by then.
The VW brand’s market share in the US is less than 2% compared with about 14% for Toyota Motor Corp and 17% for General Motors, according to Bloomberg Intelligence data.
The North American push is part of a sweeping overhaul to improve profitability at VW, one of the auto industry’s least efficient brands. Under the new strategy, the German car maker’s biggest unit plans to more than triple its profit margin to 6% and increase sales of electric cars to 1mn vehicles per year by 2025. Efforts to boost the margin are critical as Volkswagen faces at least €18.2bn of fines and repairs in the wake of the emissions crisis.
To help cover those damages and the cost of developing battery-powered and self-driving technologies, VW reached a landmark agreement with workers last week, to cut as many as 30,000 jobs worldwide and slash €3.7bn of expenses. The electric-car transition will be funded in part by eliminating more than €2.5bn of costs by scrapping underperforming conventional models, while the annual investment budget will remain stable at about €4.5bn, the company said.
Volkswagen shares were little changed at €120.40 at 1:11pm in Frankfurt trading, bringing the loss since the emissions cheating was revealed in September of last year to about 25%.
VW’s main marque, which accounts for nearly half of the group’s sales, was already struggling with bloated production costs and convoluted management before the diesel scandal came to light. Burdened by its free-spending past, productivity at VW is 30% below its peers and the car maker spent 60% more per vehicle than Toyota Motor Corp over the past three years, Exane BNP Paribas estimates.
VW currently assembles the Jetta sedan, the Golf hatchback and the Beetle in a factory in Puebla, Mexico Its only factory in the US is in Chattanooga, Tennessee. Globally, Volkswagen plans to sell as many as 3mn electric vehicles per year across all its divisions.
“Over the next few years, Volkswagen will change radically. Very few things will stay as they are,” Diess said.
“The electric car will become the strategic core of the VW brand.”
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