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New manufacturing platform headaches add to VW cost worries
July 29, 2014 / 2:10 PM / 3 years ago

New manufacturing platform headaches add to VW cost worries

* Extra Wolfsburg shifts due partly to MQB problems - worker

* MQB proving tough to bed in for VW Golf - manager

* Q2 results set to highlight cost problems for VW brand

By Andreas Cremer

WOLFSBURG, Germany, July 29 (Reuters) - Volkswagen’s move to add extra German production shifts for its top-selling Golf hatchback, which the group has attributed to strong demand, is also due to problems adjusting to its flagship new manufacturing platform, company sources told Reuters.

Europe’s biggest automaker is relying on its new MQB modular platform to deliver big savings by using more common parts across its burgeoning range of models, at a time when once red-hot demand in emerging markets is cooling.

But the drive to produce a greater variety of cars is proving tricky on some assembly lines, leading to delays and overtime, according to a worker who helps make Golf cars at Volkswagen’s home town of Wolfsburg.

“We’re coping with many self-inflicted troubles here,” said the worker, who is in his late forties and declined to be identified. “Overtime has somewhat become the order of business and some of it is totally unnecessary.”

Volkswagen (VW) has enjoyed a period of unprecedented growth, boosted by emerging market buyers of its upmarket Audis. Its sales have risen more than a half to 9.7 million vehicles in 2013 compared with levels before the financial crisis, and it is set to hit a 10-million sales target in 2014 - four years early.

But the rapid expansion has led to a costly proliferation of models. At the group’s core VW brand, for example, while output has risen almost a third over three years, profit margins have languished as the Golf has expanded to 14 different models.

At 2.9 percent last year, the VW brand’s margin is way behind its medium-term goal of at least 6 percent and even further behind auto division margins of 8.8 percent at Toyota and 9.5 percent at South Korea’s Hyundai Motor Co.

The MQB platform is at the heart of the German group’s drive to build an ever wider range of cars, more rapidly and at lower cost as it strives to overtake Toyota to become the world’s biggest carmaker by 2018.

While driving through MQB, VW Chief Executive Martin Winterkorn has also called for “painful” cutbacks at the VW brand - the group’s biggest auto division by sales - seeking to achieve annual savings of about 5 billion euros ($6.7 billion) from 2017, in a move that has angered workers.

Some analysts are concerned MQB may not deliver the expected benefits as VW strives to raise both output and margins.

“VW appears to be drifting off target, many problems have been masked by steady volume gains,” said Stefan Bratzel, head of the Center of Automotive Management think-tank. “The pitfalls of complexity are seemingly beginning to haunt VW.”

The difficulties are likely to be highlighted in VW’s second-quarter results on Thursday, which analysts expect to show a one-third drop in operating profit at the VW brand to 610 million euros compared with a year earlier.

COMPLEXITY

VW has run 37 additional weekend-day shifts on Golf production at Wolfsburg this year, a spokesman said, adding that the bulk of those were to meet stronger-than-expected demand for the Golf and Tiguan models. He declined to comment on whether any of the extra work was also linked to assembly line problems.

However, a high-ranking manager at the VW brand told Reuters there were some difficulties.

“We seem to be getting it right with (producing) Audi and Skoda models (on MQB-based assembly lines),” he said on condition of anonymity. “It’s not quite clear yet why we’re having these problems” with Golf models.

Overtime has also affected VW’s second Golf-making plant in Germany at Zwickau.

The VW manager said centralised decision-making may be leading to inefficiencies across the twelve-brand VW group, noting that CEO Winterkorn was the point man even on secondary projects. This structure had occasionally delayed decisions on strategy and models, he said.

The worker on the Wolfsburg assembly line said production of body shells was frequently disrupted by accommodating new variants such as the electric Golf and the so-called Sportsvan, which require different underbody fittings from the base model but run on the same line. Body shell shortages in turn slow paintshop and car-assembly operations, he added.

Disruption is also caused by flawed programming of robots which need to switch rapidly between different actions amid a variety of car bodies, a company official familiar with the matter said.

A Wolfsburg-based supplier added the VW brand also made many components in house, such as seats and transmissions, that rivals bought more cheaply from third parties.

“In our opinion, the issue of complexity is at the very top of the agenda,” said VW works council chief Bernd Osterloh.

“Whatever seems sensible for individual brands does not at all have to be profitable for the entire group.”

$1 = 0.7443 Euros Additional reporting by Jan Schwartz; Editing by Mark Potter

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