What should have been an especially good bit of news for Volkswagen was tempered by the maker’s less-than-upbeat outlook for the European market this coming year.
The German maker, which was the world’s third-largest automotive manufacturer in 2012, saw a 40.9% surge in its 2012 net profit, with revenues jumping 20.9% for the year. Volkswagen AG said its operating profit increased by 2.1% for the year.
The maker said it expects to “outperform the market as a whole in a challenging environment” during 2013, with a further increase in sales anticipated. But the statement by CEO Martin Winterkorn added a cautionary note that, “We are not completely immune to the intense competition and the impact this has on the business.”
Europe is the critical question that plagues VWAG as much as its competitors. The Western European market tumbled to its lowest level since 1996 last year and with even economic powerhouse Germany showing signs of weakness, few expect a recovery in 2013. Meanwhile, there are challenges in other parts of the world, including the U.S. where the recovery has been slow and uncertain, and in China suffering from its own unexpected slowdown.
As a result, “given the ongoing uncertainty in the economic environment, our goal for operating profit is to match the prior-year level in 2013,” VW’s CEO stressed in a statement accompanying the earnings release.
The maker’s 2012 net profit shot to €21.7 billion, or $28.6 billion, for the full year, revenues jumping to €192.7 billion. The VWAG operating profit climbed to €11.51 billion. Unit sales were up by 12.2%, meanwhile, to 9.276 billion.
That positioned VW behind only Toyota which sold 9.75 billion vehicles, and General Motors which nudged out VW with volume of 9.29 million cars, trucks and crossovers. But GM delivered a comparatively modest $4.9 billion in earnings while Toyota hopes to reach a target of $9.3 billion, tripling its year-earlier profit when it wraps up its current fiscal year on March 31.
VW’s cautious forecast appears to be what most analysts are focusing on, however, Juergen Pieper, with Frankfurt’s Bankhaus Metzler, telling the Bloomberg news service “I expected them to target an increase in operating profit this year. It doesn’t sound very ambitious.”
The modest forecast is all the more surprising considering VW’s ongoing product offensive and longer-term sales goals. It plans to take the sales crown away from Toyota within the next half-decade and is counting on the success of such models as the latest-generation Volkswagen Golf launched last year at the Paris Motor Show. In fact, it is adding shifts at its headquarters plant in Wolfsburg, Germany to meet demand even while shifting production for the North American market to an expanded facility in Puebla, Mexico.
But the European market poses some serious challenges. Even though VW did gain 1.6 points of share there last year, rising to 24.8%, volume declined 1.1%. That still was a better performance than the overall market, however, and stood in sharp contrast to the 13% decline in the region by Europe’s second-largest auto group PSA Peugeot Citroen.
Senior VW officials have to hope they can overcome their problems in Europe and elsewhere. CEO Winterkorn’s pay was trimmed to €14.5 million last year, down from €17.5 million in 2011. And the VWAG supervisory board has just enacted a new pay policy that will provide bonuses to board members only if the group’s operating profit tops €5.0 billion.
For 2012 and 2013, Winterkorn’s bonus will be capped at a maximum €6.75 million, with other board members topping out at a maximum €2.5 million.
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