Volkswagen weathers the storm

Volkswagen is one company ready for the worst the global economy can throw at it. The German manufacturer has paused briefly to reconsider its plans for expansion -- and then rolled on, full steam ahead.

Well, not quite. Jutta Dierks, MD for Volkswagen's Australian branch, admitted during the recent media event for the Caddy Maxi Life and the Tiguan TSI (more here ) that the manufacturer has adjusted its production to allow for the global automotive sales slump.

"Of course it has an impact on Volkswagen globally as well, but... there are [always] times when the market slows down," she told the Carsales Network.

"So years ago, we actually set up a system which we called the 'breathing factory' -- and that means we can adjust our workforce without letting people go, through less demand.

"For months we've already [been doing] that. Now we no longer work Saturdays, we no longer work overtime -- we've slowed down.

"That was probably the first thing when we realised demand was going down a bit. We also have made a decision that instead of having extensive stock, we'd rather stop production at some of the factories.

"We will have longer, extended Christmas holidays, which is very easy because all of our workers [accept] lots of overtime and they can actually take this time and just stay at home."

So the workers are safe and Volkswagen isn't facing the quandary posed by massive stock levels with no one buying, but with economists unable to agree whether the current economic climate has long-term consequences or whether the worst is now past, how is Volkswagen's long-range planning affected?

"It has, of course, an impact -- you have to look at your investment," says Dierks.

"Is it still the right time to invest, is it still the right thing to do? And is it still the right location?"

That response particularly applies to the Tennessee plant Volkswagen has committed to establishing in the town of Chattanooga -- a plant that is likely to build a new generation of Jetta for the American market. That vehicle is believed to be under consideration for Australia also (more here ).

"We looked at the US and India and we're still going ahead with both of those investments," says Dierks.

When asked how far in advance Volkswagen had seen the global economic crisis coming, Dierks admitted to being unsure, but she felt on solid ground saying that the company had been planning countermeasures for some time.

"It is a subject for all of us; it has been a subject for a long time. I mean the whole of 2008, we were aware that market conditions were changing."

The market in the US is getting all the attention of the world's press, but what about VW's home markets in Europe? Dierks explained that the situation was proving unpredictable. A downturn of 90 per cent in a smaller market is potentially less damaging for the global brand than a 10 per cent decline in a much larger market. Overall though, notwithstanding a couple of exceptions she could cite, the situation in Europe is relatively stable.

And the exceptions?

"I heard for example that the total Spanish market was down 50 per cent -- or Iceland, which was hit by the financial crisis because of the banking system: the total car market is down [there] by 90 per cent.

"So some markets [in Europe] are seriously affected, others are less affected, but they are probably more [affected] in volume. 10 per cent in a really big market is a lot of volume.

"Because of the number of markets affected, worldwide, that means a lot of volume has just disappeared."

So far, the downturn in global sales has had little effect on the value of the Volkswagen shares -- little that is, if you consider 700 Euros per share 'little'. From a high of 1000 Euros per share in October, Volkswagen's share value has coasted back to a mere 300 Euros per share.

"At the highest grade, one of our shares, you needed 1000 Euro on the table to buy one share," says Dierks.

"At [that] one time, we were the most expensive company [to buy]. Now our share price is 300 Euros a share, so it's very volatile...

"Just to give you a feeling, Daimler [AG] is 22 Euros, BMW is less.

"It was mainly driven through Porsche, because if somebody buys 30 per cent of your shares, that has a heavy impact..."

Closer to home, Volkswagen is still struggling with supply to meet the demand for its products in the Australian market. The global crisis has freed up more Tiguan allocation for Australia than was previously possible. The Caddy Maxi Life is another model that Volkswagen hasn't been able to procure in adequate numbers for the local market, but that's changing too.

Dierks regards Polo, Golf, Eos and Touareg as the outstanding sales champions in the local range. They -- and particularly the diesel variants, accounting for roughly 50 per cent of passenger-car purchases -- have contributed to almost continuous record-breaking sales in Australia since the factory assumed local distribution in 2001.

That leads to what has become something of a sore point for Dierks. If, as Mazda's Doug Dickson recently suggested (more here ), the local market for next year reaches just 900,000 units for the year, then Volkswagen's almost unbroken record of continuing sales growth since 2001 is under threat. That would be disappointing for Dierks on a personal level, but she agrees that 900,000 units is still a reasonable figure for a smaller market like Australia.

Dierks says that in all her years in the industry, she has "never seen anything like this" (the current global economic situation), but the outlook for Australia remains positive, with Dierks pointing to our low interest rates and the government's guarantees for financial transactions as indicators of an economy better prepared for the current global adversity than most other countries.

Despite the potential for a sales landslide next year, Volkswagen can extend its local product portfolio when it introduces the Passat CC (more here ) and revitalise sales of the Golf with the 6th generation model (more here ) -- both cars expected to commence retailing from around the 2009 Melbourne International Motor Show.

As far as Volkswagen is concerned, the company's sales are still 10.6 per cent ahead of the figure for 2007, year-to-date, and sales for 2008 have already exceeded the 2007 total, with sales for the month of December still to be counted.

"Volkswagen is still in pretty good shape," Dierks says and optimistically she observes: "There's always an end to [any crisis]".

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