Nothing will halt Volkswagen chief Martin Winterkorn’s audacious onslaught of the auto business. Not even Europe’s collapsing economy
It was a blowout. Germany was up 4-0 early in the second half over Sweden at October’s World Cup qualifier in Berlin. Naturally, the team relaxed—and things unravelled. With 28 minutes to play, Sweden scored, then scored again. And again. And again. The Germans had no response. Final score: 4-4.
For Martin Winterkorn, a talented goalkeeper who had professional aspirations and now runs Volkswagen AG, the porous performance was hard to witness. Yet, at a recent management meeting he dimmed the lights, cued the video and made his team watch the nightmare play out again. When the lights came back up, Winterkorn solemnly reminded his people of what they already knew: “It’s halftime.” Five years ago, on the eve of the Great Recession, he had laid out an aggressive plan to land Volkswagen at the top of the global auto industry by 2018, surpassing both General Motors and Toyota. “We’ve had three strong years,” he acknowledged. “You might feel good, but we have to stay focussed.”
His goal is more than just topping GM and Toyota financially. By 2018, Volkswagen will be “the world’s most profitable, fascinating and sustainable automobile manufacturer”, Winterkorn says, with annual sales of 10 million vehicles and a pretax profit margin of 8 percent or higher, compared with the modest 6 percent on sales of 6.2 million cars and trucks worldwide when he took over in 2007. He also intends to have the most satisfied customers and employees (there are 550,000 of the latter worldwide) in the industry. “Only an automaker who can achieve all these goals,” he tells Forbes, “can really call itself number one with justification.”
Sceptics may snicker that Winterkorn’s grandiosity is delusional, especially his plan for the US, where VW would need to triple its 2008 volume to meet his target of one million cars a year (800,000 Volkswagens and 200,000 Audis). Competitors like Toyota, Honda and Hyundai aren’t about to yield; neither will the domestics. VW had ignored the US market for decades after stumbling badly in the 1980s and remains saddled with a reputation for high prices, mediocre quality and a tin ear for American tastes.
But halfway into Winterkorn’s ambitious strategy, and despite a challenging economy, those 2018 predictions are looking conservative, if anything. Vehicle sales are up 49 percent worldwide since 2008, to 9.3 million units, and its global market share has improved to 12.8 percent, up one-half of 1 percent. Revenues grew even faster (up 63.5 percent), fuelled by strong demand for pricey luxury models from Audi and other premium brands. Europe remains difficult, but Volkswagen is outperforming competitors there. And it has enviable positions in growth markets such as China and Brazil. Even in the US, VW has momentum, with 2012 sales up 31 percent, to 580,000 vehicles (including 438,000 VWs and 139,000 Audis). This all translates into big profits: Last year, VW earned a record 13.2 percent on $250 billion, a performance that makes his long-term forecast of an 8 percent margin look like sandbagging.
To sustain this growth, Winterkorn is deploying this cash gusher towards the biggest spending binge in VW’s history. Over the next two years the company, along with its Chinese joint ventures, plans to invest almost $80 billion in 10 new plants (including seven in China) and scores of new products, from an American-style SUV to a $9,000 starter vehicle for emerging markets, as well as in technologies like plug-in diesel hybrids and advanced infotainment systems.
“Their only vulnerability is themselves,” says automotive analyst Rebecca Lindland of Rebel Three Consulting. “They can be tripped up by arrogance, underestimating their competitors or overspending foolishly.” Neither GM nor Toyota is sitting still. Both are spending about $8 billion a year on research and development, while investing billions more to expand capacity.
That’s why Winterkorn wanted to remind his people what can go wrong if they lose focus midway through the game. In soccer terms, he gives this assessment of VW’s performance so far: “We have completed an extremely successful first half with a strong team and the right strategy. However, one thing is clear: Conditions on the pitch are deteriorating. Pressure is growing.”
“Volkswagen must continue to attack and make good use of its opportunities,” he continues. “Then we will still be ahead when the final whistle blows.”
To fully understand the scope of Winterkorn’s ambitions, it helps to go to VW’s hometown of Wolfsburg, Germany, a small northern city in the middle of nowhere that literally grew up with the Volkswagen Beetle. The city was carved out of farmland in 1938 as a place to house workers assembling “the people’s car” ordered up by Hitler prior to World War II. Until the massive factory with its imposing power plant was erected along the shores of the Mittelland Canal, the most notable landmark was the medieval Wolfsburg Castle, for which the town was named.
Today Wolfsburg (population 123,000) might as well be called Volkswagen City. The 73-million-square-foot factory, employing more than 50,000 workers, and an adjacent 13-storey brick headquarters building still dominate the riverfront landscape. The company’s influence is everywhere, from VW-sponsored cultural festivals hosted in a defunct power plant to the nearby Volkswagen Arena, home of the VW-owned VfL Wolfsburg soccer team, to the VW-owned Ritz-Carlton hotel, where visiting VIPs tend to stay.
(This story appears in the 17 May, 2013 issue of Forbes India. To visit our Archives, click here.)