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Volkswagen emblems on a production line at the German auto maker's plant in Wolfsburg in this March 7, 2012 file photo. (FABIAN BIMMER/REUTERS)

Volkswagen emblems on a production line at the German auto maker's plant in Wolfsburg in this March 7, 2012 file photo.

(FABIAN BIMMER/REUTERS)

Money Matters

How Volkswagen is winning the sales war Add to ...

The Volkswagen Group juggernaut, despite its base in recession-wracked Europe, keeps chugging along, spinning off fat profits as fast as it ramps up production to deliver new models such as the 2013 Volkswagen Beetle convertible.

VW reports that during the first half of 2012, the multi-brand Group delivered 4.45 million vehicles, a year-on-year increase of 8.9 per cent. Now while group sales chief Christian Klingler warned that this half of the year would be “altogether more challenging,” the reality is that VW is making mincemeat of its rivals in Europe as well as in North America and China. Indeed, VW Canada sales are up 13 per cent on the year and by reaching 53,593 through the end of November, the company surpassed 2011’s total sales in Canada. From here, then, it’s all gravy in terms of growth.

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But not everyone is cheering. As just-auto.com reported in the summer, some say VW is using massive profits from China to subsidize a price war in Europe. VW is, therefore, building market share by taking share away from rivals. That’s the essence of a report from Bernstein Research.

For the first half of 2012, VW raised its market share in Western Europe to almost 24 per cent, up from 22.4 per cent in the same period of 2011, notes the Bernstein Research on which the reported was based. Thanks to the strength of its China business and the benefits of a weak euro, VW is crushing its competition, said Bernstein analyst Max Warburton.

“VW is using super-normal Chinese profits to subsidize a price war in Europe, and since it operates in the same currency as competitors, it no longer has the old ‘natural brake’ of a rising Deutschmark to slow its export success,” Warburton said in the report.

Of course, if France and Italy dumped the euro and returned to their original currencies, Fiat of Italy and the French car companies – Peugeot and Renault – might be able to use devalued currencies to fight their way back to a competitive position. But a currency-based rescue plan seems unlikely for many reasons, the report suggests. One of them is that Ford and GM Europe are mainly based in Germany and both would suffer even more from an expensive, revalued Deutschmark.

So today, as the Wall Street Journal notes, Volkswagen is sitting on a cash pile of €9.2-billion that’s growing thanks to robust sales in export markets such as China. On top of that, Germany is “Europe’s economic powerhouse,” which means German companies, notes the Journal, can borrow more money to fund expansion at the low rates of blue-chip German companies that “track what the German government pays” for borrowed money.

“Volkswagen has become a safe haven,” Volkswagen’s finance chief, Hans Dieter Pötsch, noted in the Journal.

Thus, VW is well-funded to expand its product lineup with cars as affordable as the 2013 Beetle convertible. Now you know a big reason why the latest addition to VW Canada’s lineup is less expensive and more value-laden than the last Beetle convertible in 2010.

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