Mentions the Czech Republic and Slovakia as destinations for an increasing amount of investment.

The new head of the main Volkswagen (VW) passenger car brand, former BMW executive Herbert Diess, starts work tomorrow on 1 July. He takes over the role from CEO Martin Winterkorn after the company decided that the main passenger car brand, which still contributes around 60% of the VW Group's overall sales volume, needs its own dedicated manager. Diess' main task is to raise the competiveness and profitability of the brand, which saw its operating margin drop further from 2.9% in 2013 to 2.5% in 2014. This falls far short of some of the company's rivals, especially the likes of Nissan with 5.2% in 2014 and Hyundai/Kia posting a margin of 8%. The longer-term target for the VW passenger car brand is to add EUR5 billion to the brand's bottom-line earnings by the end of 2018, and boosting the operating margin to 6% by 2018. He joins the brand as it posts slowing sales, with volumes falling by 5.9% in May to 499,500 units, with a year-to-date (YTD) decline of 3% to 2.5 million units. However, as a VW outsider Diess will have to walk a tightrope in terms of implementing cost cuts while keeping the all-powerful VW works councils and unions on side. He is therefore likely to concentrate initially on improving production efficiencies, where there is probably some scope for improvement given some of the issues seen with implementing production of the MQB-platform Mark-VII Golf at Wolfsburg and Emden.

Meanwhile on the subject of production costs and overall cost efficiencies, a Bloomberg report has quoted Martin Jahn, managing director of VW Group Fleet International as saying that many OEMs were looking to move some of their production footprint back from China, as a result of rising costs, to locations like Eastern and Central Europe. Instead of the steady flow of investment into China that has been a characteristic of the industry over the last decade Jahn said, "We are seeing a rather opposite process at present." He added, "Personnel costs in China are growing and that, in combination with long logistic routes and transport costs, means production of components in China isn't that advantageous anymore." Jahn mentioned the Czech Republic and Slovakia as destinations where there is an increasing amount of investment. Skoda, Hyundai-Kia and suppliers like Nexen plan to spend USD1.3 billion in the next five years, The Czech Republic and neighbouring Slovakia are among the world's biggest car producers per capita and both are investment-friendly environments with positive tax regimes for large foreign direct investments (FDI).

Outlook and implications

There is little doubt that Diess has a massive challenge on his hands in turning around the competiveness of the VW Group's mother brand, which still accounts for 60% of overall sales but only about 20% of the Group's overall profits. Porsche contributes a higher overall amount to the Group's overall net profit (EUR2.7 billion) to the EUR2.5 billion the VW passenger car brand posted in 2014 despite the VW passenger car brand building 30 times more cars than Porsche. Profit margins are being squeezed by the cost of implementing the company's new platform strategy which relies heavily on the MQB platform, which supports all the company's transverse-engined cars such as the best-selling Golf. There has been issues in terms of complexity of implementing production of the Mark-VII Golf at Emden and Wolfsburg and there have been costly line stoppages and inefficiencies as a result. In Europe the brand has also been hit by the heavy discounting and incentives environment, while the downturn in Brazil has also hit hard while the brand's performance continues to disappoint, and the latter area is likely to be a major focus for Diess, However, as an VW outsider he must avoid upsetting the powerful works council and union lobby, but there will only be so much he will be able to do to improve the cost base in terms of squeezing suppliers or reducing range complexity. The main issue with the VW passenger car brand's lack of cost-competiveness, the percentage of production based in high-cost Germany, is likely to remain unaddressed.

Contacts

Copyright © 2025 S&P Global Inc. All rights reserved.

These materials, including any software, data, processing technology, index data, ratings, credit-related analysis, research, model, software or other application or output described herein, or any part thereof (collectively the “Property”) constitute the proprietary and confidential information of S&P Global Inc its affiliates (each and together “S&P Global”) and/or its third party provider licensors. S&P Global on behalf of itself and its third-party licensors reserves all rights in and to the Property. These materials have been prepared solely for information purposes based upon information generally available to the public and from sources believed to be reliable.
Any copying, reproduction, reverse-engineering, modification, distribution, transmission or disclosure of the Property, in any form or by any means, is strictly prohibited without the prior written consent of S&P Global. The Property shall not be used for any unauthorized or unlawful purposes. S&P Global’s opinions, statements, estimates, projections, quotes and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security, and there is no obligation on S&P Global to update the foregoing or any other element of the Property. S&P Global may provide index data. Direct investment in an index is not possible. Exposure to an asset class represented by an index is available through investable instruments based on that index. The Property and its composition and content are subject to change without notice.

THE PROPERTY IS PROVIDED ON AN “AS IS” BASIS. NEITHER S&P GLOBAL NOR ANY THIRD PARTY PROVIDERS (TOGETHER, “S&P GLOBAL PARTIES”) MAKE ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE PROPERTY’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE PROPERTY WILL OPERATE IN ANY SOFTWARE OR HARDWARE CONFIGURATION, NOR ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ITS ACCURACY, AVAILABILITY, COMPLETENESS OR TIMELINESS, OR TO THE RESULTS TO BE OBTAINED FROM THE USE OF THE PROPERTY. S&P GLOBAL PARTIES SHALL NOT IN ANY WAY BE LIABLE TO ANY RECIPIENT FOR ANY INACCURACIES, ERRORS OR OMISSIONS REGARDLESS OF THE CAUSE. Without limiting the foregoing, S&P Global Parties shall have no liability whatsoever to any recipient, whether in contract, in tort (including negligence), under warranty, under statute or otherwise, in respect of any loss or damage suffered by any recipient as a result of or in connection with the Property, or any course of action determined, by it or any third party, whether or not based on or relating to the Property. In no event shall S&P Global be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including without limitation lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Property even if advised of the possibility of such damages. The Property should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions.

The S&P Global logo is a registered trademark of S&P Global, and the trademarks of S&P Global used within this document or materials are protected by international laws. Any other names may be trademarks of their respective owners.

The inclusion of a link to an external website by S&P Global should not be understood to be an endorsement of that website or the website's owners (or their products/services). S&P Global is not responsible for either the content or output of external websites. S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions. S&P Global has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P Global may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P Global reserves the right to disseminate its opinions and analyses. S&P Global Ratings’ public ratings and analyses are made available on its sites, www.spglobal.com/ratings (free of charge) and www.capitaliq.com (subscription), and may be distributed through other means, including via S&P Global publications and third party redistributors.