Here's a dead-easy prediction: Before the end of this decade, the mighty Volkswagen Group will face a Toyota-like quality and sales crisis or a General Motors-like comeuppance that will surely create a financial nightmare. It's inevitable.
Too many senior people within the VW Group are running around talking about Strategy 2018, the big plan to sell more than 10 million vehicles that year and fully dethrone Toyota as the world's biggest car company by sales volume.
"The Volkswagen Group continues to have its sights firmly set on capturing pole position in the automotive industry," CEO Martin Winterkorn said in a recent statement related to the company's financial results late last month.
From the outside looking in, VW looks like a monstrous conglomerate chasing sales volume in a quest to become the world's biggest car company.
Now it is true that the VW Group is profitable. VW's third-quarter net income rose 12-fold to €2.1-billion (about $3-billion) on an 18-per cent jump in sales to €30.7-billion.
Dig into the numbers and you see that a disproportionate share of the Group's income is coming from one source - the Audi luxury brand. Audi contributed about half (€2.3-billion) of the Group's €4.8-billion operating profit for the first nine months of this year. As you would expect, Audi accounted for about half (€940-million) of the Group's total third-quarter operating income (€2.1-billion), too.
Here's the problem: Most of VW's 10 brands aren't making any contributions to the company's bottom line.
Some, like the Spanish SEAT unit, are losing quite a bit of money. It's all well and good for the Group to brag about expecting to sell more than seven million vehicles for the first time this year. But as Detroit's auto makers have clearly learned, and as many of Japan's auto makers are learning now, there is no future in selling cars that don't make money.
And as Toyota's recent woes have underscored, chasing the title of World's No. 1 Auto Maker by Sales can come at a high cost - one Toyota is paying for now with a damaged reputation and profitability that pales in comparison to, say, smaller Japanese car companies such as Honda and Nissan.
There's an old saying in the car business: "We lose money on every car we sell, but we make up for it in volume." The VW Group isn't losing money on every car it sells, but it is losing money on many of them in certain regions and from certain brands. Perhaps it would be better for the VW Group to focus on profitability at all of its 10 brands, and let the sales numbers fall where they may.
If the world has learned one lesson from the bankruptcy of Chrysler and General Motors and the recent quality/recall woes at Toyota, it's that chasing sales at the expense of profits is almost certain to turn out badly.
Driver’s Logbook: Super-sized SUV the anti-muscle car