Malady’s Echo Chamber

Not only is Volkswagen riding out the worst of the Dieselgate scandal, they are on track to steal Toyota’s crown as the world’s biggest car maker.

head2head

Read anything about Volkswagen in recent months and you would gain the impression that the company was on the ropes. Production numbers from the first third of 2016 paint a different picture, however. So what’s the actual story?

Global Car Sales, Jan-Apr 2016

  1. Volkswagen – 3,361,600
  2. Toyota – 3,271,970
  3. GM – 3,146,667

“For the first four months of the year, [Toyota] finds itself some 90,000 units behind Volkswagen,” says Forbes’ Bertel Schmitt. That’s right, VW is selling more cars than Toyota. “More tellingly, Toyota is on a protracted downward trend. Compared to the same period of last year, the company’s deliveries are down 2.8%.” If the trend continues through the summer, the people’s car maker will indeed finish the year as the world’s most popular marque.

Pumping Iron

Unsurprisingly, being the world’s biggest motor manufacturer involves shifting a lot of metal. How much? Lets take a look.

Global Car Sales, Jan-Dec 2015

  1. Toyota – 10,080,000
  2. Volkswagen – 9,930,000
  3. GM – 9,800,000

If Schmitt’s projections pan out, Toyota and Volkswagen are set to swap places with roughly the same numbers. GM will remain largely static in the number three slot, not good for a company that used to be number one with a bullet, but not bad for a company that was recently bankrupt.

This is all highly provisional, mind: Volkswagen were quickest out of the traps in the first third of 2015, but Toyota still came out on top once the last of the Christmas turkey hit the bin.

Outside the Echo Chamber

So from where does the disparity between expectation and reality stem? Schmitt identifies a widespread confirmation bias in US-centric reporting which routinely overemphasises Dieselgate’s potential effects upon VW’s business. It would seem that the average American is not hugely interested in what VW has been up to, with US sales down a mere 5.1% since the scandal broke.

Then there is a bigger picture. The North American car market might be one of the biggest but Volkswagen is a minnow in a big pond, the USA contributing a paltry 5% towards VW’s worldwide sales. A much bigger slice of the pie, 35-40% of VW’s total revenues, comes from the East. “Last year, it was China, and not Dieselgate, that kept Volkswagen back,” notes Schmitt. “This year, it may be China, not Dieselgate, that turns Volkswagen into the world’s largest automaker.”

Wafer Thin

Peer beneath the headline numbers and all is not terribly rosy in the Wolfsburg garden. Steph Willems at The Truth About Cars notes, “Profit at Volkswagen passenger cars fell 86 percent to €73million, down from €514 million last year.” That leaves VW operating on a gross margin of 0.3%, barely enough to warrant getting out of bed. Fortunately, overall VW Group profits were up, Bentley, Porsche, Audi and Skoda (plus perpetual loss makers Seat and Bugatti) pulling in a combined €3.44billion.

There is also the small matter of Volkswagen having to stump up €16.2billion, a combination of fines to the US Government and restitution for American buyers of errant diesels. VW USA must also contend with a brace of lawsuits and North American dealerships are becoming increasingly mutinous as its Eurocentric line up continues to struggle and sales of the US Passat tank. In the face of a small and diminishing market share and withering costs, one wonders how long Volkswagen will choose to persist in the US market.

Pyrrhic Victory

And then there’s Toyota. Never a company to sit on its collective hands, Schmitt claim’s the Japanese giant is significantly investing in streamlining capacity and making their processes even leaner. “If Volkswagen ends the year as World’s Largest Automaker, it will also close the books on a year of huge losses,” he says, “while number two Toyota would be busy counting all the money it made.” Ouch.

Sources:

Author: chrisward1978

Professional pixel pugilist and word wrangler. Unprofessional pub snug raconteur.

23 thoughts on “Malady’s Echo Chamber”

  1. Does the spirit of Piech live on in the quest for even more listings in Guinness Word Records? Sometimes you just can’t help getting big, but ‘biggest’ is generally an empty honour that comes at a price. VW still have an enviable image for quality, even if not deserved, but the sort of margins necessary to garner most sales is not usually sympathetic to retaining quality. One might hope that Dieselgate was a salutary warning to VW and, of course, it’s still too early to tell, but further growth is certainly not the way to get out of their troubles.

    1. While VW’s management’s reaction to the emissions scandal has been characterised by an aloofness bordering on arrogance, they have been astute in one area. They have deftly steered the focus of attention away from their sister brands, allowing them to be mostly unharmed by negative publicity that has attached itself to the core VW nameplate. Audi, Porsche and Skoda are continuing to grow strongly, while even VW sales are proving more resilient than many analysts feared.

      Some suggest VW’s interests would be better served by pulling the Volkswagen brand entirely from the US and introducing Skoda – a marque without taint in the US. Of course it would also be a marque without recognition, which would bring problems of its own.

      On Autocar today, Hilton Holloway gives his view on VW’s situation – his assessment (if a little contradictory), is not all that positive…

    2. One can only assume that other VW Group companies has also used the same engines, but have been spared the embarrassment due to having no presence in the USA. Also, whilst Audi have enough autonomy from VW to have their own engines, they must have something in common, which begs the question: who knew what and when?

    3. Eóin: I read Hilton’s piece but the number of people questioning his accountancy skills below the line cast doubt upon his accountancy methods.

    4. Chris: I wouldn’t dispute that. His argument (as he’s presented it) doesn’t altogether appear to stack up.

    5. I should also point out that this article is not legally binding and in no way constitutes professional advice. Markets can go down as well as up. E&OE. If symptoms persist please contact a qualified Proctologist.

  2. Incidentally, there was a piece in today’s Süddeutsche Zeitung about Matthias Müller’s attempts to calm the waters by focusing on topics other than Dieselgate.

    Herr Müller has been quite vocal lately about VW’s e-car push, which could also involve the building of a dedicated battery factory at Salzgitter. That would, of course, be yet another case of excessive German vertical integration, but VW isn’t alone in fearing that an automotive business without substantial battery know-how might become doomed.
    Whether that facility will be built or not: the words have been spoken before, but this time they seem to be serious about VW’s commitment, which is a radical change, indeed.

    Here in Germany, VW has recently also benefitted from the odd unintended decoy, namely environmental agencies’ uncovering of similarly tinkered diesel pollution figures, courtesy of Opel and Fiat in particular, but also Mercedes and Jaguar. The case of Mitsubishi will also have helped deflect a portion of the limelight.

    Surprisingly, BMW hasn’t been convicted of any wrongdoing (yet). Either the Bavarians are building their diesel engines to a higher standard than the competition, or they’re particularly astute at massaging the numbers.

    All things considered, VW/VAG isn’t out of the doldrums yet, but the situation isn’t appearing as desperate as it was a few months ago. How much of this can actually be attributed to Matthias Müller’s efforts can only be ascertained at some point in the future.

    1. I have often wondered how BMW engineered their magnificent 2 litre diesel engine to produce vastly more power than rival engines (180bhp in top dress) and yet still kept the emissions so low (the engine falls into the £30 tax bracket in the UK). Not that I am for one moment impugning the good name of the Bavarian Motor Works, of course. But were they hypothetically to be swept up into this whole unfortunate diesel emissions test tampering imbroglio, I would guess that the ramifications for BMW would outweigh those facing VW, purely by dint of the comparative importance of the 20d to BMW’s European sales.

    2. Absolutely, Chris. BMW’s percentage of diesels sold in Europe is considerably bigger than the competition’s.

      I wouldn’t want to prematurely exculpate anyone, but so far BMW’s engines have been tested the same way as those that got caught. Incidentally, a VW engineer I got to talk to in private was obviously highly impressed with the diesel expertise at Alpina, who are working very closely with BMW.

      Maybe they’re just the best at cheating, or maybe they’re simply not taking the shortcuts as the rest. I certainly don’t feel in a position to ultimately judge this.

    3. BMW’s diesels use the same fuel as everyone else, so to realistically imagine they do not spew out the same noxious filth as everyone else stretches the imagination somewhat. I’m not flinging any particular accusations BMW’s way you understand, but logically, one would have to assume, (as with the professional cycling peleton), they’re all ‘at it’.

    4. As I’m happy to take any opportunity to say, diesel is a disgusting fuel and I’ve never believed that even legitimate figures don’t conceal its harmfulness. I find it believable that BMW could achieve the emission figures they claim by good engineering – after all, VW are now apparently able to do so. Some manufacturers build better engines than others. I’ve always imagined that VW’s cheating wasn’t a long-term plan, but a relatively last minute piece of dishonesty brought about in panic when they realised that their optimistic projections weren’t actually going to be realised.

    5. I am very much of the same mind as Sean regarding diesels. Labouring the environmental credentials falls flat as you see a CUV emitting a cloud of inky black smoke like a startled cuttlefish. I am also of the opinion that it is only cheapish diesels (plus lowish depreciation) that make CUVs economic to run, in Europe at least. If diesel engines were suddenly taxed commensurate to their petrol equivalents, I think the upward trend of CUV purchasing would start to wane.

    6. Someone better qualified than I should pen an article about the BMW 20d engine. Smooth and powerful, it was the engine that ignited diesel in the premium sector. It’s taken ten years for other manufacturers to get anywhere near its output, economy or emissions.

    1. I follow her (no pun intended, I swear) on Instagram. some months ago, she and her band were recording the follow-up to the first album.

      as Melody and Kevin Parker are no longer together, I doubt he will keep his leading role on the record, so don’t get too excited.

    2. Might be no bad thing. The latest Tame Impala album is a real plodder. Each release sounds thinner and reedier, where the first album felt huge.

  3. Looks and sounds delightful! (No, I’m not talking about VW diesels).
    It’s amazing what new stuff I learn here, and by far not only about cars.

    I’m not surprised about the good VW sales. What I keep hearing from VAG drivers all around me goes along the lines of “I don’t care too much, and others do bad stuff as well”.

  4. Not one mention of the awesome Potatoshop skills employed in stitching together the image above. I would give up, were that not to have happened years ago.

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