Although Europe's road to recovery remains uncertain, Volkswagen Group remains optimistic about its business and still plans to boost the profitability of its volume brands. The German is expecting its loss-making Seat unit and its VW brand to contribute more towards the group's target to become the largest carmaker in the world three years from now.
To post higher profit margins, VW needs to expand beyond its home market and share more components to reduce costs. The VW brand, which account for a large part of the group's vehicle sales, is expected to post an operating profit margin that is over 6 percent of sales this year, according to a Sept. 9 presentation by VW Chief Financial Officer Hans Dieter Poetsch.
Seat is expecting to post a turnaround by posting profit margin of more than 5 percent, after logging EUR156 million in operating losses in 2012. Skoda is aiming to post a profit margin that is between 6 percent and 8 percent of sales, according to the presentation, which didn't set a timing for the achievement of the goals.
Daniel Schwarz, an analyst at Commerzbank AG, remarked to Bloomberg News that improved margins for Volkswagen's volume brands depend on "substantial cost reductions" through the rollout of parts-sharing technology, adding that the targets seem realistic. The VW group relies on its luxury units for more than half its profits, with profit from Audi and Porsche as well as presence in China helping it offset a six-year decline in the European car market.
Despite uncertainties in Europe, VW group still keeps its eyes on expansion, as evidenced by the launch of mainstream models like the Seat Leon ST and Skoda Rapid Spaceback and a van-like version of the VW Golf at the Frankfurt motor show this week. The carmaker has also unveiled the VW e-Golf and e-Up electric vehicles as well as a plug-in hybrid version of the Audi A3 hatchback.