Why VW Is the Car Giant to Watch?
Volkswagen is bent on displacing Toyota as the world's biggest car company—and it just may succee. Editor's note: The original version of this story said Volkswagen sold 35,000 Passats in 2009. The company sold 11,000.When Volkswagen (VOW:GR) CEO Martin Winterkorn said two years ago that he was determined to zoom past Toyota (TM) to become the world's biggest automaker, the notion seemed laughable. At the time, the German automaker sold 3 million fewer vehicles than Toyota, was losing ground in the U.S., and had a reputation for iffy quality. Toyota, then set to pass General Motors as the best-selling carmaker on the planet, seemed unassailable.
Today Toyota is vulnerable, and Winterkorn's ambitions seem a lot less outlandish. In November, for the first time, VW built more cars than its Japanese rival. Toyota still sells more each year, but VW has closed the gap to less than 1.5 million cars. Quality continues to be an issue for VW in the U.S., but Toyota is the one suffering negative headlines after a series of embarrassing recalls. Toyota's CEO—in an act of extreme self-flagellation—has even said his company's best days may be behind it.
Winterkorn sees an historic opportunity. And with the backing of his formidable boss and mentor, VW Chairman Ferdinand Piëch, he's seizing it. By 2018, Winterkorn vows, VW will pass Toyota. "VW saw a chink in Toyota's armor and realized they could act on their ambitions," says Stephen Pope, who follows the industry for Cantor Fitzgerald in London. "They went for it straightaway."
All over the globe, Winterkorn, 62, is punching the accelerator. VW has agreed to buy a 20% stake in Suzuki Motors (7269:JP) to gear up for an assault on the rapidly growing markets of Southeast Asia and India. Winterkorn is going after BMW (BMW:GR) and Mercedes (DAI), committing $11 billion over the next three years to Audi, VW's luxury brand. Peter Schwarzenbauer, a board member who oversees Audi's sales and marketing, says the brand plans 10 new models, including the A1, the world's first "premium subcompact."
Aiming Downmarket
Winterkorn's most ambitious plans are in the U.S., where he aims to double sales by 2012. It was only five years ago that VW tried and failed to move upmarket in the U.S. Remember the Phaeton, the VW with a sticker price of $85,000? Now Winterkorn is reversing course. He's betting that Volkswagen can steal customers from Toyota, Honda (HMC), Ford (F), and others by selling Americans on German engineering and style at affordable prices. This year, VW will introduce a compact priced to compete with cars like the $16,000 Toyota Corolla. "We have to bring the masses to VW," says Mark Barnes, VW's U.S. chief operating officer.
Beating Toyota won't be easy. For starters, VW sells fewer vehicles in the U.S. than Subaru (7270:JP) or Kia and still has a reputation for making unreliable, overpriced cars. In Southeast Asia—a Toyota stronghold—the VW brand is practically unknown. Ditto for India. Winterkorn's plan to double Audi's sales in the U.S. by 2018, meanwhile, isn't exactly scaring BMW. "They have been saying that for years," says Jim O'Donnell, president of BMW of North America.
Still, VW is a formidable competitor; it earned $975 million in the first three quarters of 2009, despite the global collapse of car sales, and it has $33.3 billion in cash. "We want to make [VW] the economic, ecological, and technological leader by 2018," Winterkorn wrote in an e-mail. "Our goal is not just about size—we are aiming for quality-driven growth."
Piëch has long wanted to move beyond VW's bases in Europe, China, and Brazil. In the 1990s, as Audi chairman and later VW CEO, Piëch acquired lower-end brands, including Spain's SEAT and the Czech Republic's Skoda. Later he added ritzy names like Bentley, Lamborghini, and Bugatti. "He used to privately talk about selling a car for every purse and purpose like Alfred Sloan did at GM," says Garel Rhys, president of the Center for Auto Industry Studies at Cardiff University in Wales.
For more info on www.businessweek.com
Today Toyota is vulnerable, and Winterkorn's ambitions seem a lot less outlandish. In November, for the first time, VW built more cars than its Japanese rival. Toyota still sells more each year, but VW has closed the gap to less than 1.5 million cars. Quality continues to be an issue for VW in the U.S., but Toyota is the one suffering negative headlines after a series of embarrassing recalls. Toyota's CEO—in an act of extreme self-flagellation—has even said his company's best days may be behind it.
Winterkorn sees an historic opportunity. And with the backing of his formidable boss and mentor, VW Chairman Ferdinand Piëch, he's seizing it. By 2018, Winterkorn vows, VW will pass Toyota. "VW saw a chink in Toyota's armor and realized they could act on their ambitions," says Stephen Pope, who follows the industry for Cantor Fitzgerald in London. "They went for it straightaway."
All over the globe, Winterkorn, 62, is punching the accelerator. VW has agreed to buy a 20% stake in Suzuki Motors (7269:JP) to gear up for an assault on the rapidly growing markets of Southeast Asia and India. Winterkorn is going after BMW (BMW:GR) and Mercedes (DAI), committing $11 billion over the next three years to Audi, VW's luxury brand. Peter Schwarzenbauer, a board member who oversees Audi's sales and marketing, says the brand plans 10 new models, including the A1, the world's first "premium subcompact."
Aiming Downmarket
Winterkorn's most ambitious plans are in the U.S., where he aims to double sales by 2012. It was only five years ago that VW tried and failed to move upmarket in the U.S. Remember the Phaeton, the VW with a sticker price of $85,000? Now Winterkorn is reversing course. He's betting that Volkswagen can steal customers from Toyota, Honda (HMC), Ford (F), and others by selling Americans on German engineering and style at affordable prices. This year, VW will introduce a compact priced to compete with cars like the $16,000 Toyota Corolla. "We have to bring the masses to VW," says Mark Barnes, VW's U.S. chief operating officer.
Beating Toyota won't be easy. For starters, VW sells fewer vehicles in the U.S. than Subaru (7270:JP) or Kia and still has a reputation for making unreliable, overpriced cars. In Southeast Asia—a Toyota stronghold—the VW brand is practically unknown. Ditto for India. Winterkorn's plan to double Audi's sales in the U.S. by 2018, meanwhile, isn't exactly scaring BMW. "They have been saying that for years," says Jim O'Donnell, president of BMW of North America.
Still, VW is a formidable competitor; it earned $975 million in the first three quarters of 2009, despite the global collapse of car sales, and it has $33.3 billion in cash. "We want to make [VW] the economic, ecological, and technological leader by 2018," Winterkorn wrote in an e-mail. "Our goal is not just about size—we are aiming for quality-driven growth."
Piëch has long wanted to move beyond VW's bases in Europe, China, and Brazil. In the 1990s, as Audi chairman and later VW CEO, Piëch acquired lower-end brands, including Spain's SEAT and the Czech Republic's Skoda. Later he added ritzy names like Bentley, Lamborghini, and Bugatti. "He used to privately talk about selling a car for every purse and purpose like Alfred Sloan did at GM," says Garel Rhys, president of the Center for Auto Industry Studies at Cardiff University in Wales.
For more info on www.businessweek.com
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