VW Needs Higher Profits To Keep Up With Expansion

Volkswagen, Europe’s largest automaker, has recently seen new sales records. However, profitability gains are not keeping pace with the company’s expansion, leading VW CEO Martin Winterkorn to state that the multi-brand automotive group “urgently” needs higher profits to help fund future expansion.

“Over the short-term, we urgently need more efficiency and higher profit,” he stated at yesterday’s staff gathering at Volkswagen’s main factory in Wolfsburg, Germany. According to Automotive News, this comes after Winterkorn told managers on July 14 to step up their game.

As part of an effort to streamline work processes, Winterkorn plans to cut costs by 5 billion euros ($6.7 billion) a year starting in 2017. This will affect all levels of the Volkswagen brand. While cost-cutting may be beneficial in the beginning, analysts believe it could expose differences between management and labor within VW’s brands.

In 2013, VW’s profit margin was 2.9 percent compared to Toyota’s 8.8 percent and Hyundai Motor Company’s 9.5 percent. Besides cost-cutting, Winterkorn has implored “painful action” across the 310-model empire. This involves restricting research and development costs, speeding up model launches, halting production on low-profit vehicles, and serving the needs of foreign markets more.

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