March 13, 2014 / 9:25 AM / 6 years ago

VW shifts focus to profit as 10 million sales goal met

BERLIN (Reuters) - German automaker Volkswagen (VOWG_p.DE) will reinforce steps to boost earnings in coming years as its long-planned target to increase sales to over 10 million cars a year is almost met.

Volkswagen T-ROC concept car is pictured during the media day ahead of the 84th Geneva Motor Show at the Palexpo Arena in Geneva March 4, 2014. REUTERS/Arnd Wiegmann

Group sales were up 4.7 percent in the first two months of 2014 at 1.47 million autos, excluding heavy trucks, making it likely VW will reach its 10 million goal outlined in 2007 this year, four years earlier than originally planned, Chief Executive Martin Winterkorn said.

But operating profit at the multi-brand group edged up only 3.5 percent in the past three years to 11.7 billion euros ($16.27 billion) in 2013, held back by spending on technology and models, while sales surged 24 percent to 197 million euros.

“We’re now focusing more strongly on qualitative goals,” Winterkorn said at VW’s annual press conference. “More than ever before, our objective is qualitative growth.”

Wolfsburg-based VW has used resilient profits to boost investment during a European recession that plunged French and Italian peers into the red.

But generating cash to fund global expansion is getting harder as VW balances rising short-term costs, such as 4.6 billion euros in 2013 negative currency effects, with upgrades and additions to a fleet of more than 310 models.

The push for greater efficiency at Europe’s largest automotive group echoes a call by the CEO last month on senior managers to keep costs down at VW as the company prepares for another year of tough market conditions.

VW toned down its guidance for 2014 operating profit on February 21, saying EBIT may only improve if economic conditions, especially in Europe where VW sells about 40 percent of its vehicles, improve more than expected.

To boost margins, the carmaker is increasingly counting on the gradual adoption of its new MQB modular platform for a wide range of cars.

VW is working to cut production costs and shorten assembly times across its various ranges of small and medium-sized vehicles by basing them all on the new MQB single modular platform, which standardizes production and shares a greater number of parts.

VW said last October it expects to save about 1 billion euros ($1.39 billion) in production costs this year as the number of cars built on the MQB platform may almost double to 2 million in 2014 and rise to 4 million by 2016.

Europe’s largest automotive group last year eclipsed General Motors (GM.N) to become the world’s second-biggest car maker behind Toyota (7203.T), increasing sales of passenger cars, vans and heavy trucks 4.9 percent to a record 9.73 million vehicles.

Winterkorn said greater “earnings quality” will also be achieved by deepening cooperation with Porsche, which VW took over in 2012, and moves to integrate truckmakers MAN SE (MANG.DE) and Scania SCVb.ST.

Integration of Porsche, which accounts for over a fifth of group profit, may yield over 1 billion euros per year in savings from joint purchasing and development, Winterkorn said. Aligning MAN and Scania may reap at least 650 million euros of savings, though it may take at least 10 years to achieve the full potential.

VW said deliveries are poised for further growth next year as the carmaker plans to launch over 100 new models and facelifts in 2014 and 2015.

“Of course we’re not ticking off the subject of volume growth,” the CEO said. “We will further increase our deliveries.”

($1 = 0.7192 euros)

Reporting by Andreas Cremer; Editing by Greg Mahlich and Hugh Lawson

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