Can VW End Its Skid?

[Deserion]

Can VW End Its Skid?

By Gail Edmondson Mon Feb 13, 9:38 AM ET

Ever since Ferdinand Piech took an 18.4% stake in Volkswagen through Porsche last October, financial analysts have been buzzing about the chances for faster restructuring at Europe's largest auto maker. On Feb. 10, Volkswagen finally issued the news that markets have been waiting for, announcing plans to cut up to 20,000 jobs and renegotiate labor contracts to help bring costs down.
"The restructuring will definitely move faster. Piech is the owner now, not just the supervisory board chairman," says one former VW senior executive. "There won't be a lot of resistance."
Thanks to changes to the board, Production Chief Wolfgang Bernhard, who joined Volkswagen in 2004 after having co-authored the turnaround at U.S. auto maker Chrysler, should enjoy the backing and the freedom to do even more restructuring. The VW brand unit, for example, barely broke even in 2005, even though management claims that an earlier restructuring plan is saving the company $4.2 billion a year.
Challenge From Japan.

Instead, the key profit drivers were VW's premium Audi unit and the financial-services unit, which powered group operating profit to 3.6%. "The VW brand itself is still in trouble," says Juergen Pieper, auto analyst at Metzler Bank in Frankfurt. For 2005, VW's group net profit rose 62%, to $1.32 billion on revenues of $114 billion, triggering a 7% rise in VW's shares. One key agent of change is likely to be Porsche CEO Wendelin Wiedeking, who says VW must benchmark itself to Toyota (NYSE:TM - News). Analysts say Toyota has moved upmarket in Europe and is determined to position itself exactly as VW has traditionally positioned itself -- as the most reliable brand, whose fuel-efficient cars offer a great value.
"The biggest challenge for VW is Toyota," says Philipp Rosengarten, senior analyst at market researcher Global Insight in Frankfurt. "Today's message is that the restructuring plan is delivering savings, but not enough."
Analysts expect VW to step up the pace of restructuring by hiving off several unprofitable German component plants, including axles, transmissions, and motors. That would bring employment down by some 5,000 to 7,000 workers. High on the list are VW plants in Braunschweig, Salzgitter, and Kassel.
Breaking The Deadlock.

The other 13,000 to 15,000 job cuts will come through early retirement or individual payouts of at least $120,000, says the former VW executive. "It will be expensive. It will cost VW at least $2 billion." On top of all that, the decision comes late. Rivals have already moved faster than VW to slash workers, outsource components to low-cost suppliers, and shift production to Eastern Europe and other low-wage zones. Finally, VW's management will seek to raise the workweek from 28 hours back to 35, or even higher, without raising pay. That would help neutralize the 20% premium VW long ago negotiated to pay its workers over the national steelworkers' agreed wages.
Piech's control of VW, through his family's 51% stake in Porsche, breaks the nettlesome deadlock between labor, management, and the state of Lower Saxony, which holds 18.2% of VW's shares. It's hardly a secret that Volkswagen's German factories are the company's Achilles' heel. Its 100,000 workers earn the highest wages and enjoy the shortest workweek.
Family Affair.

Unable to close down capacity or let go of workers, VW's German factories operate at about 70% capacity, losing money. Wiedeking himself has already signaled that Porsche, as shareholder, expects to see a decent return on its $4 billion investment. Those close to Piech say he's driven to restore Volkwagen's competitiveness and ensure that the company founded by his engineer grandfather Ferdinand Porsche doesn't head down a dead end. To get the job done, he will have to keep costs down sharply, even as VW reengineers its model line back to "People's Car" basics.
"The company will be run more and more by Wiedeking, who turned around Porsche in the 1990s, and Bernhard," says Metzler's Pieper, who believes a well-managed VW could eventually produce an operating margin of 8% to 9% -- a level that only a clutch of German luxury auto makers and Japanese rivals earn today. Investors are just hoping the Wiedeking-Bernhard duo keeps looking like a dream team.

Source

Des

[mentalVdub]

Analysts say Toyota has moved upmarket in Europe and is determined to position itself exactly as VW has traditionally positioned itself -- as the most reliable brand, whose fuel-efficient cars offer a great value.

yeah right, in what life time? maybe the 1.6 is fuel efficient.

toyotos are so much better all the way around and people know it. good engines, proficient power, insane gas mileage, and all together a pretty good looking car. and hey, they don't have stupid little things breaking like VWs.

i love my car, but the new vehicles out there by the japanese auto manufacturers are really really hawt.

[Bugmonkey]

VW reengineers its model line back to "People's Car" basics

I think that line there is the key to VW survival. Nobody wants or can affort a Phaeton, and the Toureg is expensive for it's class. They need to tighten up the current models. Bring us the Polo. Emphesis what they have that no one else does, the TDi, and concentrate on being "peoples car" again.
As for the Beetle. The Beetle is VW. People go on a VW lot expect to see Beetles. There needs to always be a Beetle.

[Fuseli]

while Japanese cars may be more reliable, they are certainly not more fun to drive, toyotas are wonderful cars, but ever driven one? look how boring your moms honda civic is to drive, they're about as bad as that. Numb, dull, i'll take my quirky German car over a boring Japanese car any day...

[Porkchop]

Originally Posted by Fuseli

while Japanese cars may be more reliable, they are certainly not more fun to drive, toyotas are wonderful cars, but ever driven one? look how boring your moms honda civic is to drive, they're about as bad as that. Numb, dull, i'll take my quirky German car over a boring Japanese car any day...

Actually, my impression of the fit/finish/quality of our 2000 Beetle can be summed up as "rattle-trap". It doesn't feel like a solid quality car - never mind all the little niggling things that keep breaking. My wife, who is certainly no car person, rode in a friend's Alero one day and although she (rightfully) thinks its one boring ride, she commented on how much more solid and better put together it felt riding in it compared to the Beetle.

From what I've heard, this is where the new Jetta excels - in feeling more like the sort of money you're spending on it. Which is great - but the styling is fairly blah - and I don't want to bring up the whole Corolla-look-alike controversy again, but it really does look very Japanese-ish in styling.

Everything VW does just makes it more and more obvious that have no real strategic vision or direction and hopefully this latest change will finally get them on the right path.

[mentalVdub]

Originally Posted by Fuseli

while Japanese cars may be more reliable, they are certainly not more fun to drive, toyotas are wonderful cars, but ever driven one? look how boring your moms honda civic is to drive, they're about as bad as that. Numb, dull, i'll take my quirky German car over a boring Japanese car any day...

yeah yeah yeah, my mom's honda...

but i'll tell ya what randy, that damn thing got really good gas mileage when we went to san diego and back. and when we go to disneyland all the time, the gas guage barely budges. my 2.0 would be at half tank by the time i got back from d-land.

yeah, the honda is boring as hell to look at, and there are certain aspects of it that blow, but for the price that was paid and what we've all gotten out of it... it's not too bad of a car.

oh, and yes! i HAVE driven a toyota.

[Phxcoop]

I think I need to chime in here since I just had to do the whole car shopping thing. Yes Honda's are very boring cars to drive. They have no personallity and you really do not know if you are diving or not with those cars. With that said, IMHO the new civic's are far from having very nice fit and finish, the inside seems like crap to me. For the crazy prices they are charging for a civic ex auto, I expected it to have better fit and finish than the Beetle. The 2006 beetle by far had beter fit and finish than the new civic's. But the Accord had one of the best I have seen. But I just did not like the car. I was very close to buying the civic. What stopped me? Well the car rattled a lot. Too much noise, very cheap plastic. When you can see the push outs of the plastic mold, you know something is wrong. The paint was comming off the car and this was brand new. These are not just isolated issues, apprently, honda is having all kinds of issues with their new car.

I am sorry but the inside of most of the Toyota's now a days are just crap also.

I do hope VW can pull it together cause they do have some of the most intresting products to offer.

[PhoenixRising]

Hmm. I own two TOYOTA products, and think they are rock steady cars. My PRIUS just passed the 10,000 mile mark last night. Not a problem yet. And about 48 MPG, on average, so no complaints.

I think that it's a lot more sturdy then my Beetle ever was. HOWEVER, I really would love for VW to mount a comeback. I would love for the POLO to come here...

I hope to someday, own another VW. I just want it to be as well put together as my TOYOTA is now.

[pdoel]

Yeah, VW does have it's quality issues. I've been rather lucky with mine. One MAF, one O2 sensor, and one temp sensor. None of which left me stranded. Other than that, just routine maintenance which only helps me spend extra time with my car.

Toyota's quality is definitely up there. I just manage to get weird problems with mine. My first Toyota had a bad clutch pedal assembly (known problem, they all had them). Toyota just wouldn't fix it. Had it in about 8 times in 2 years for it. They replaced it twice, greased it many times, and even tried replacing the master and slave cylinder. Dealership often told me it was normal and that even the brand new vehicles had the problem. I finally gave up.

My second Toyota suffers from a rattling seat. It moves on the track, the pivet points to adjust the seat rattle and move. Every Sport Edition 4Runner has the same problem, even right out of the factory. They did finally seem to fix this one (according to the message boards). I also go through brakes quite a bit. First set lasted 17,000 miles. Second set lasted 7,000 miles. The third set got to 2,000 miles before they started squeeling. On this issue, however, I think it's dealer related. They squeel even when I'm not depressing the brakes, think the calipers are sticking.

Other than annoyances, the Toyota goes strong. Never had so much as a valve or sensor to replace. And never worry about being stranded.

The VW, while it has never left me stranded, I sometimes think, "It's gotta happen someday". But, I will say. The Toyota has NEVER put a smile on my face like the Beetle has.

[Beeble]

You guys who complain that your sporty turbos don't get good gas mileage should have thought of that before you bought them. The TDIs have been getting 40+ mpg for years, so it's not a secret that there is an efficient NB that's also fun to drive.

Our other car is a 1993 Toyota van with over 153,000 miles on it. There have been a few little dinky mechanical problems with it, but it's been hit twice and I keep getting the bodywork done because it gets 25mpg, carries seven people and has never let me down. It squeaks and rattles like crazy, but then so do I. I'll get back to you in thirteen years and let you know if the NB did as well.

[Porkchop]

Originally Posted by Beeble

You guys who complain that your sporty turbos don't get good gas mileage should have thought of that before you bought them. The TDIs have been getting 40+ mpg for years, so it's not a secret that there is an efficient NB that's also fun to drive.

Actually, she has a 2.0L. And so do I. And 26 mpg for a 2.0L, 115hp 4 cylinder is lousy.

I'd love to have a TDI, but after the recent gas scare the premium everyone is selling the TDI's for, won't make up the additional fuel cost of a gasser. Kinda like the hybrids...

[jiggseob]

Can VW end its skid? Can VW stop losing customers to Toyota and Honda?

The big question is WHY are VW freaks like us even considering Toyota and Honda?

The answer is design/build quality.

A while ago, I was in the VW stealership for some service on our '98 Beetle tdi. I ended up waiting around the service department for more than an hour, because I was early to pick up the car.

What an eye-opening experience. Almost every customer was irate about something. Several customers came in riding with a tow-truck driver with their car on the hook. Electronic problems. Power windows. Brakes that last 16,000 miles and are not warranty. The service advisors got yelled at A LOT.

My 98 Beetle experience concurs with what I observed at the dealership. The problems we've had, some of them more than once: hood release mechanism, fuel door release, oodles of burnt out headlights, fuse box meltdown, sound system meltdown, engine plug in heater, belly pan, power window regulators, power window switches, MAF sensor, MAP sensor, hvac fan switch, dash lights, clogged intake manifold, and the list goes on.

The design/build of my Beetle is just awful; trim that comes unglued, the belly-pan that self-destructs, the horribly inadequate interior light, and all of the aforementioned failures.

VW's skid can be illustrated up by this situation: the self-clogging intake manifold on all TDI's. THIS IS THE ONLY CAR IN THE WORLD THAT DOES THIS. PERIOD. When the TDIs first came out, VW said it wasn't a problem, and you should use Stanadyne fuel conditioner. Then they say it IS a problem, and the owner should pay the dealership many hundreds of dollars to clean the intake every 50k miles. Customers are not stupid. This is the only model of car in the world that does this, and every single one does it, and that makes it a DEFECT. VW should FIX IT without making owners pay. This situation clearly illustrates a corporate attitude towards the customer - and its a bad corporate attitude that the customer doesn't get from Toyota or Honda.

The other part that drives me nuts is the knee-jerk reaction of blaming the corporate difficulty on the labour situation in the German factories. The current problems facing VW are not due to paying a domestic worker a decent wage in decent working conditions. These problems are due to bad strategic decisions at the corporate level, and decisions at the manufacturing level to cut every possible penny from a design before putting it into production.

My first automotive experience was bench-pressing an air-cooled flat-four up into the engine bay of my '64 Beetle. Then, I owned a few A1 and A2 cars. VW enjoyed amazing success in the 80's and early 90's with those cars. Solid, reliable, and a notch or two above the rest of the pack in terms of build quality and "driving feel". How things have changed... talk about "driving feel" to someone who is riding with the towtruck operator with their Jetta on the hook. One word - HONDA.

Smart Cars of Europe currently offer the Smart For-Two model in Canada. Its a two seat, diesel (800cc) powered shopping cart that doesn't have enough room to carry a bag of hockey gear. Its twice the price of a Chev Cavalier, and is selling like crazy. The VW Polo would sell here, but instead VW gives us the Tourageg....

Yes, the current state of VW is regretful. For a VW freak like me to be thinking Honda, and for other similar VW freaks to be thinking Honda and Toyota, it brings a tear to my eye...

Mathew Banack
Round Hill, Alberta, Canada

[lugh]

Originally Posted by Beeble

You guys who complain that your sporty turbos don't get good gas mileage should have thought of that before you bought them. The TDIs have been getting 40+ mpg for years, so it's not a secret that there is an efficient NB that's also fun to drive.

Geraldine makes me smile whenever I just look at her. And when we bang along the twisties. bringing expressions of "Huh? Whazzit??" on other drivers' faces, it's just soooo satisfying. We use Bio 100 (mix in a little kerosene in the cold months)and get high performance, incredible mileage, total comfort, complete reliability, and smiles smiles. I know I'm preaching to the choir, but for me it's not a mind thing. Geraldine is a whole lot more than an efficient appliance could ever be. Different strokes, I guess.

[60KGhia]

I am constantly comparing my 98 Beetle with my girlfriend's 99 Mazda Protege.
The Beetle is quieter, has a vastly supierior interior design (it's a designer car after all), better interior components, better brakes, and is a little better in the snow. On the other side, the Protege, feels faster, gets better mileage, handles better, has phenominal radio reception, better visibility and engine access is far superior to the VW. The Mazda also cost less when new, even with the full option package (sans leather). The VW is the base model.
I love my Bug, and it will be worth more than the Mazda at resale time, but there's got to be more value for dollar if VW wants to compete with the US and Asian manufactuers.

[Cody]

I sympathize with the complaints of others here, owning a 1999.5 Jetta, but I have to say -- look at what VW is doing now. New cars, new engines, new platforms. They're trying this out. Don't say that VW is nosediving because of your 98NB, when they've had brand new models out for a year now. They're working on it. We now must simply wait and see.

Cody

[from Margaritaville...]

The bottom line is that ALL car mfgr. are suffering due to the market dominance by the big three automakers (Toyota, Honda, and Nissan not GM, Ford, and Chrysler). It's not their styling, it's not their pricing, IT"S THE QUALITY!!! Stop blaming everyone else and everything else. Selling quality vehicles for 35 years in the U.S. has people flocking to their showrooms. Employee discounts and paint jobs peeling off in sheets? HAH!...

[from Margaritaville...]

By the way, my '98 Toyota Sienna just turned 140,000 miles and drives just like the first day. I wonder how I'll be describing my Beetle at 140,000 mi.???

[PurpleHaze]

Why will VW not bring in some of their other models? Saw a couple that I thought were practical and had style, in the Dominican Republic the other week, one was called a GOL and the other a FOX. Nice interior also, don't know if they were deisel or not but the wife commented that she would drive one if they had them here. VW has to get away from the big flashy models and get back to their roots.

[Breez]

Originally Posted by mentalVdub

hey, they don't have stupid little things breaking like VWs.

i love my car, but the new vehicles out there by the japanese auto manufacturers are really really hawt.

I understand, I almost got a toyota because 3 of my friends have mid 90s camrys and I swear they just do oil changes, its never any costly repair...

I had my windows/regulators/clips replaced over 6 times on my 1998 Jetta GLX VR6 and it was always little stuff (which is still 200-600 dollar repairs at the dealership).
But you guys are right, the Toyotas drive funny, and it seemes everyone has a boring Honda (I did test drive the Honda Hybrid V6 Accord last month and it was sweet, but still boring, even with the bells and whistles)

I honestly would pay a little more to have the products made in Germany or even USA and not Mexico, that would make me feel a little better too.

PS I would go back to making car payments if they made a hybrid/electric/enviromentally cool NEW car... (I know the diesels are nice, my ex had a Jetta TDI, and it was great...) but the beetle does scream to be something even cooler and a concept of something so modern... the beetle should have been the first hybrid/electric/whatever on the market!!! And now years later, its still just the gas or diesel

[bockegg]

I honestly would pay a little more to have the products made in Germany or even USA and not Mexico, that would make me feel a little better too.

Reply:
It is not the Mexican plant. I live in PA and when the New Stanton plant was here the quality was dismal. I had a '81 Rabbit (New Stanton, PA), a '82 diesel jetta(Wolfsburg, Germany), a '84 GTI-Germany, a '85 Jetta(Germany), a '86 Quantum(Germany), and a '94 Audi 5000S (Germany). Let me tell you that the quality, build and reliability of the German and American cars were not the best. I switched to other brands from '85 until 2003 when I purchased a NBC.

Also, the worst reliable car I've ever owned was a 2002 Mercedes ML 320 and it was built in Alabama.

Mike