Volkswagen and Toyota Fight for #1 Spot

German automaker Volkswagen AG (OTC: VLKAY) doesn’t exactly say that it wants to be the world’s largest carmaker. Instead it says that it plans “to make Volkswagen the world’s most future-proof automotive group.” Whatever that means.
It might mean that the company plans to spend big bucks to unseat Toyota Motor Corp. (NYSE: TM) as the world’s leading automaker and to put resurgent General Motors Corp. (NYSE: GM) in its place. Ford Motor Co. (NYSE: F) and Honda Motor Co. (NYSE: HMC) might also have something to say about VW’s plans. Nonetheless, VW announced today that it will invest 51.6 billion euros ($72.1 billion) through 2015 to beef up its plants and its product development. The company expects to spend 41.3 billion euros on investments in property, plant, and equipment, with about half that going into Germany alone. VW will also pump 10.3 billion euros into capitalized development costs.
The company will also continue to invest in its joint ventures in China, to the tune of 10.6 billion euros through 2015. These investments are not included in the 51.6 billion euros, and the company says it will fund the Chinese ventures from cash flow generated by the ventures themselves.
The VW plan calls for modernizing and extending almost all its brands and models. Essentially, VW wants to streamline its production by rationalizing development of modular technology that can easily be adapted from one line or model to another. VW also plans to continue developing new conventional and electric power trains.
But will all this be enough to dislodge Toyota? The Japanese company has overcome the disastrous global recalls of nearly 14 million cars earlier this year. Toyota reported revenue of nearly $60 billion in its September quarter, but most of its operating income came from its financing operation, not car sales.
Toyota sold 1.82 million cars worldwide in its most recent quarter, an increase of more than 400,000 units from the same period a year ago. For the first nine months of 2010, VW sold 5.4 million cars, which averages out to about 1.8 million a quarter.
A revitalized GM, a strong Ford, and a combative Honda won’t be standing still either, and it remains to be seen whether one of these can lure buyers away from either Toyota or VW. The more vulnerable of the two would seem to be Toyota, given its recall headaches, but the way the brand has bounced back is pretty impressive.
VW is placing a big bet, but it has no choice if it wants to be #1.
Paul Ausick

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