Power to the people’s caWhile Audi brand represented the most spectacular growth within the VW Group, Volkswagen passenger car sales worldwide rose 3.4% to 5.93 million vehicles in 2013 (5.74m in 2012), making a major contribution to overall group sales of 9.7m vehicles. This was a new record for the group, and up 4.3% from 9.3m vehicles in 2012. The total is well on course for VW’s stated objective of 10m sales a year by 2018.

Group board member for sales Christian Klingler said: ‘Across the board, all brands contributed to these very positive results which are a very good achievement in light of the difficult conditions in markets all over the world. As far as the current year is concerned, we expect market developments on a level similar to 2013. Even though the situation in Europe would appear to be stabilising, economic uncertainty will continue and the challenges we will be facing on markets will remain virtually unchanged.’

Global sales in 2013

Volkswagen passenger car sales performed extremely well in the Asia-Pacific region, up +15% from 2.37m to 2.73m vehicles. The bulk of these sales were in China, where VW has two joint ventures, with Shanghai Automotive (SAIC) and First Automobile Works (FAW). With a total of 2.51m units delivered, the Volkswagen brand reported a year-on-year increase of +16.6%, up from 2.15m in 2012.

The excellent result of 2013 was made possible by the good performance of locally produced models such as Lavida, Passat, Sagitar and Bora and newly launched models such as Tiguan, Gran Lavida, CC and Jetta.

Growth in Asia more than outweighed a decline in Europe, where conditions remained difficult, with sales falling -3.7% from 1.70m to 1.64m. VW brand cars accounted for 560,100 sales in Germany, down -4.4% from 586,100 in 2012. Deliveries in Western Europe (excluding Germany) were down -3.9% to 811,800 (844,500) units. In the Central and Eastern Europe region, 263,300 vehicles were sold, down -1.4% from 2012’s 267,100. VW brand deliveries in Russia, the region’s largest single market, fell -5.1% to 156,300 (164,700 in 2012).

North American sales also declined. Volkswagen delivered 616,800 vehicles to customers in the North America region (623,300 in 2012), of which 407,700 units were delivered in the United States, down 6.9% from 2012’s 438,100.

Klingler attributed much of the global VW brand growth to the latest-generation VW Golf, launched just over 12 months ago. ‘Our brand’s most important model, the Golf, has once again been a strong driver. The latest generation has got off to an excellent start and we delivered the 500,000th model in December, just one year after the market launch,’ he said.

‘We expect to see further momentum from key countries such as China and the USA, where the Golf will be launched shortly. And we are constantly adding to the Golf family; the new Golf Estate has just gone on sale, and the Golf Sportsvan along with the e-Golf and the Golf Plug-in Hybrid will follow later this year.’

Klingler added: ‘We will be facing new and difficult challenges in 2014, but we are very well prepared thanks to our young and sustainable product range.’

Commercial vehicle sales

Global 2013 sales for Volkswagen Commercial Vehicles also rose slightly (+0.3%) to 551,900 from 550,200 vehicles in 2012. Sales fell 3.5% in Europe from 325,000 units to 314,400 light CVs. Sales in Germany fell sharply – down -6.7% to 114,800 units (123,100 in 2012), though sales were more stable in the rest of Western Europe. Excluding Germany, 159,400 vehicles were shipped (down -1.1% from 2012’s 161,100). In Eastern Europe VWCV shipped 40,250 vehicles in 2013 (down -3.4% on 2012’s 41,670).

By contrast, VWCV deliveries in South America grew by +8.3% to 160,400 (148,100 in 2012). Most of these (123,900) were sold in Brazil, where sales grew +9.1% from 2012’s 113,600. In Argentina, 24,200 vehicles were sold, a rise of +20.5% from 2012’s 20,100 units. In the Mexican market, which comes under the North American region, the brand saw sales rise by +24.5% to 9,850 (2012: 7,900).

Investment in automotive division

Given Volkswagen Group’s strong position, the company is preparing significant further investment globally in a bid to seize the global number one vehicle manufacturer spot from key rivals General Motors and Toyota. Volkswagen Group has recently announced it will invest a total of €84.2 billion (USD114bn) in its automotive division over the next five years.

More than two-thirds of the injection will be used to improve vehicle efficiency and implement environmentally friendly production. ‘We will continue to invest strongly in our innovation and technology leadership, despite the uncertain economic environment,’ said Volkswagen Chairman, Martin Winkerkorn.

Investments in property, plant and equipment in the automotive division will amount to €63.4bn. And around 60% of these investments will be made in Germany. ‘The amount being invested in Germany is a strong testament to the fact our home locations will continue to play a key role in the globally positioned Group, going forward,’ said Winterkorn. ‘We are clearly committed to Germany as a manufacturing and development location. At the same time, we are also stepping up our investments in the markets outside Europe to further increase our global presence and capability.’

Around 65% of the investment (€41.2bn) will go toward modernising and extending the product range for all its brands. New vehicles and successor models will be based on modular technology and related components. Much of the spend involves engines – the advent of Euro 6 standards means VW will have to ‘completely revamp’ its engines. The group says it will continue to press ahead with the development of hybrid and electric motors.

In addition, the company will make cross-product investments of €22.2bn during the next five years, including spending to expand capacity, including new press shops and paint shops.

VW’s joint ventures in China are not consolidated and are therefore also not included in the projections. They will invest a total of €18.2bn in new production facilities and products from 2014 to 2018, financed from the JVs’ own funds.

European manufacturing

Germany remains the cornerstone of VW’s European production network. Wolfsburg, the company’s founding plant, quietly celebrated its 75th birthday in 2013, and significantly increased its output over 2012 by 47,000 units to 807,000 units, largely thanks to strong demand for the new 7th-generation Golf, which accounts for around half the output at Wolfsburg alongside Tiguan and Touran, together with the Golf Sportsvan, which launches in 2014.

Passat, which rivals Golf globally in terms of output, is made for European markets at Emden, and also at Zwickau, a plant that also makes Golf versions. Golf Cabriolet is made at Osnabruck alongside various Porsche models, while the showpiece ‘Glass factory’ at Dresden continues to build the luxury Phaeton model.

VW tends not to mix and match different brands within its plants – rather, it focuses plants on a specific brand. Polo production is concentrated at Pamplona in Spain, while Scirocco coupe and Sharan MPV (as well as its badge-engineered SEAT sister, the Alhambra) are made in Setubal, Portugal.

VW’s other major European plant is at Bratislava, Slovakia, which builds the Up! city car (plus its SEAT and Skoda derivatives) alongside large SUVs (Touareg, Porsche Cayenne and Audi Q7).

China

Volkswagen was first mover into China more than 30 years ago, and while its early market lead was eroded as rivals flooded into the market, the move is now paying dividends. VW Group now has 16 plants in China building cars, engines and components, and Volkswagen, Audi and Skoda vehicles are all assembled there. Volkswagen led China's vehicle market in 2013, overtaking General Motors. Last year, the Volkswagen brand led the market with sales rising by 16% to a record 3.27m vehicles, overtaking GM, which reported growth of around 11% to 3.16m units.

Shanghai-Volkswagen, the joint venture between VW and SAIC established in 1983, last year built its 10 millionth vehicle, a Tiguan. Shanghai-VW currently operates vehicle plants in Anting, Nanjing, Ningbo and Yizheng, Jiangsu province. Production at a new plant in Urumqi, Xinjiang region, commenced a few months ago and a further plant in Changsha, south central China, is scheduled for completion in 2015.

Meanwhile the newer FAW-Volkswagen JV, with plants in Chengdu and Changchun, as well as engine production in Dalian, sold 1.23m vehicles in the first 10 months of 2013, up 21.1% year on year. Its market share was 9.8% by October. Of the total sales, 810,000 units were Volkswagen brand models, mainly Golf and Jetta, up 22% from a year ago. A range of Audis is also made at the JV.

North America

North America is seen as weak spot in Volkswagen’s global strategy. After an abortive plan to build the Mk1 Golf in the 1970s as the Rabbit, VW has served the US with imports from Europe and from its vast plant in Puebla, Mexico. Nevertheless, the US market accounted for just 5% of the group's worldwide total in 2013.

However, it returned to the US as a manufacturer in 2011 with a new $1bn plant in Chattanooga, Tennessee, which builds the Passat and has now been confirmed as the source point for a new compact SUV. Both Passat and the new Jetta, built in Puebla, have been specifically tailored to mainstream US consumers and re-engineered to be built at a much lower cost than their predecessors.

These moves are starting to pay dividends, and VW Group is well on its way to achieving chief executive Martin Winterkorn’s goal of 1m annual US sales by 2018. At the recent Detroit Show, Winterkorn said Volkswagen Group was now also a force to be reckoned with in the US market: ‘The Group has almost doubled unit sales in the US since 2008, setting a new record of over 600,000 deliveries in 2013,’ he said.

Of these just over 400,000 were VW-brand vehicles. By 2018, VW wants to sell 800,000 VW-brand and 200,000 Audi-brand vehicles in the market. VW wants to boost the Chattanooga plant's annual production capacity to 500,000 units, adding several new models, including a lower-priced successor to the Tiguan and a larger, seven-passenger crossover.

The Puebla plant currently builds four models for world markets: Jetta, Golf Estate, Beetle and Beetle Cabrio. It will start manufacturing Mk7 Golf early in 2014, for supply to North America and Brazil. Capacity is in excess of 600,000 units.

Last year an engine plant in Silao in the central Mexican state of Guanajuato was opened to supply both Puebla and Chattanooga with TSI petrol engines. The USD550m plant is designed for a medium-term annual capacity of 330,000 units.

South America

Volkswagen has a major presence in both Brazil and Argentina. Volkswagen’s Brazilian subsidiary was the automaker’s first operation outside Germany, and celebrated its 60th anniversary last year. It has produced more than 20m vehicles in Brazil, including models designed and engineered locally.

These include the Gol, introduced in 1980 and number one seller in Brazil every year since 1987. The Gol two- and four-door hatchback is currently in its fifth generation and accounts for 71% of family production, with 11% for the Voyage saloon and 18% for Saveiro pick-up and Parati estate.

VW is the largest producer in Brazil and has capacity of around 900,000 cars at four manufacturing plants in São Bernardo do Campo, Taubaté and São Carlos, the latter making engines only, all in the state of São Paulo, and in São José dos Pinhais, state of Parana. The Parana plant was opened 15 years ago and is being upgraded to build the Mk7 Golf. Older Mk4 Golf models are still made in Brazil, though production has finally ended of the T2 Minibus, as it could not meet new Brazilian safety standards.

Volkswagen has two production plants in Argentina: the Pacheco plant, located 36km from Buenos Aires, produces more than 100,000 Suran cars and Amarok pick-ups, mainly for export. The Córdoba plant, 710km from the capital, produces gearboxes at a rate of 1m a year.

Russia

Volkswagen Group Rus produces cars in Kaluga, central Russia, 170km southwest of Moscow. The plant opened in 2007, and current annual production capacity is 150,000 cars, expandable to 225,000 vehicles per year. The plant currently produces three models – the Volkswagen Tiguan and Polo and the Skoda Fabia, and 700,000 cars have been made since the plant opened.

In June 2011, Volkswagen Group Rus and Russian automaker GAZ signed an agreement for contract assembly of Volkswagen and Skoda vehicles at the GAZ plant in Nizhny Novgorod. Production started at the end of 2012 and models include Skoda Yeti and Octavia as well as Volkswagen Jetta. VW has invested around €1bn in Russia up to the end of 2012 and is planning to spend another €840m by 2015.

Local component production will commence in 2015 when a new engine plant in Kaluga is commissioned. The VW Group is also planning to open a logistics centre near Moscow.

India

Volkswagen Group entered India in 2001 with Skoda, adding Volkswagen brand in 2007. It has two factories in the country, at Aurangabad and Chakan, near Pune.

The Chakan plant has cost €580m and is the biggest investment by a German company in India. Construction of the plant started in 2007 and full production capacity of 130,000 vehicles a year was achieved in 2011. Vehicles produced include VW Polo, Skoda Fabia and Rapid. Larger cars including Passat and Jetta are built at Aurangabad, alongside other Skoda and Audi models.

Volkswagen Group India has about 5,000 employees working at its various locations. Over 3,500 employees work at Chakan with about 1,000 employees at Aurangabad plant and around 300 people at the national sales office in Mumbai.

South Africa

VWSA’s Uitenhage plant produces right-hand drive Polo and CrossPolos for local and international markets, as well as the Polo Vivo for the South African market. Polo Vivo and Polo are South Africa’s best-selling passenger cars.

In 2013, the Uitenhage plant produced around 110,000 cars, with roughly half of its output destined for export. A new press shop was opened at the plant in 2013. VWSA ceased production of the CitiGolf, based on the original Mk1 Golf, in 2009.

ASEAN and Pacific Rim

Malaysia’s DRB-Hicom and Volkswagen plan to jointly invest up to €252m in a new car manufacturing facility in the Malaysian company’s automotive hub in Pekan. DRB currently assembles the Volkswagen Passat in Pekan but a new joint venture factory will be built to produce the Jetta and Polo models. The cars will be sold locally and exported to other ASEAN markets.

Volkswagen Group is also mulling a €200m investment to build a car plant in Indonesia, according to local reports last year. Volkswagen is keen to expand its small presence in Southeast Asian markets as it strives to become the best-selling global automaker. ‘We will certainly become an active player in the region in the next years,’ Michael Macht, VW group production chief, told Reuters at the 2013 Frankfurt Motor Show.

Environmental targets

Volkswagen Group has stated a strategic goal of becoming the world's most environmentally sustainable automaker by 2018 and is planning to reduce the average CO2 output for its European line-up to 95g/km by 2020.

Martin Winterkorn said: ‘That corresponds to a fuel consumption of less than four litres per 100km across all segments and vehicle classes. This is a Herculean task calling for the best efforts of all our 40,000 developers. We can do it.’

Winterkorn also stated that Volkswagen would reach its self-imposed target of reducing the CO2 output of its European new vehicle fleet to less than 120g/km by 2015. Volkswagen intends to outperform by more than 12g/km the legal requirement for its vehicle fleet.

Global fleet structure

Fleet sales will continue to centre on mainstream models – Polo, Golf, Passat, with niche models such as Tiguan SUV gaining in popularity. Europe remains the main fleet market – VW claims 50% of Western European sales are to corporate buyers, with the UK and Germany being the leading markets.

Fleet sales tend to be structured nationally, but Volkswagen does have frame agreements with some multinational customers, generally under the umbrella of the Volkswagen Group Fleet International and Multi-Brand Sales (VGFI) business, which is responsible for the cross-brand coordination of major fleet business for the Volkswagen Group on an international level.

This highly successful business coordinates international key account sales of Volkswagen, Audi, SEAT and Skoda vehicles, and VW Group claims VGFI is market leader in the five largest individual EU markets – Germany, UK, France, Spain and Italy – in terms of key account business. Major fleet customer contracts, training and events in Germany will be managed at VGFI head office in Braunschweig, Germany.

Light commercial vehicles

Commercial vehicle production is concentrated at Hanover, which builds Transporter/Caravelle as well as some Amarok pick-ups. VW sources its larger Crafter panel van and chassis-cab model from Mercedes-Benz plants in Ludwigsfelde and Düsseldorf – it shares much of its structure with the Mercedes-Benz Sprinter.

However, Mercedes has announced it will terminate this agreement at the end of 2016, leaving VW without a production site for the Crafter. Recent speculation suggests a new plant could be built in Poland to produce up to 100,000 Crafters a year from 2018. Volkswagen already produces Caddy and Transporter commercial vehicles in Poznan, Poland, as well as buses and engines at Polkowice, so production could be reshuffled in the short term.