Frank Witter
The chief financial officer of the VW Group defends the austerity measures.
(Photo: Bloomberg)
DusseldorfVolkswagen– Workers need to get up a sustained savings pressure in the company to adjust. The Group’s CFO expects stronger cooperation from the subsidiaries. “We are not in normal mode,” said VWBoard member Frank Witter talking to Handelsblatt. The pressure on the margins had increased, in particular by the introduction of new electric vehicles,
The Chief Financial Officer still sees considerable need to catch up with regard to cooperation among the subsidiaries. “In the past, we have not made optimum use of synergies,” emphasized Witter. And: “The corporation must intervene in cases where this does not happen sufficiently.”
The intensified cooperation of the brands is an essential building block to increase the return of the group. With the current yield level VW could not be satisfied.
Witter is facing an important week: On Tuesday, not only the annual balance sheet press conference is on the agenda, but also a capital market day. Witter has to prove to investors and analysts that VW is really serious about its policy of greater efficiency and cost discipline. Recently, the Volkswagen brand had disappointed with their poorer returns.
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Monday, 03/11/19, 17:45 Dusseldorf: After-work dialogue: Current challenges for supervisory boards
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Witter defended the austerity program, which means that even smaller things like cookies for meetings and color copies are deleted. “Symbolic changes also have their value,” emphasized the VW CFO. Traditional patterns of behavior may well be called into question.
Part of the austerity program is that the Group is shutting down the diversity of variants in engines and transmissions. “We can not have more variants than our competitors, this is especially true in the volume business,” said Witter. This reduces the complexity and therefore the costs.
Read the complete interview with Frank Witter here:
Mr. Witter, the global economy is not developing positively at the moment. Especially China is no longer making progress, What do you expect for 2019? China has cooled significantly since the middle of last year. Since you can not be overly optimistic right now. We expect that the car market in 2019 should reach about the same level as in the previous year. In America, one must also assume that there will be no growth this year. Europe has been very volatile in the past year, mainly due to the new WLTP approval standards. It should all be a bit more stable in 2019, although we should master the next WLTP level a bit better. Without a trace this will not happen to us in 2019 either. So we will still have some volatility in Europe this year.
Vita Frank Witter
But Audi still has big problems with WLTP, only at Volkswagen it has become better. That is certainly a point with Audi, At present, it is still important to provide the customer with a wider range of services. At Audi, we have made a tight package altogether, there is certainly still something in the finalization.
What was the key mistake at WLTP last year? Has the dimension been completely misjudged? The entire industry had to go through this bottleneck. For example, there were limited capacities at the test stands. In the VW Group, one must also mention one point: For us, the development departments are overloaded because of the diesel issue for three years. This gives us a double degree of tension. Then comes the high variety of variants in the VW Group.
They significantly reduce the number of engine-gearbox variants. Is this an important factor that leads to cost reduction? At many points in the Group, we talk about reducing complexity. It is now clear throughout the company that we need to optimize our offerings. We are working hard on this topic. We can not have more variants than our competitors, especially in the volume business. Of course, that’s what makes all brands, not just Volkswagen.
How do you decide to give up an engine variant, and of course, the return is an essential component. Then we look at how much the individual variants are actually in demand. Perhaps some variants are also very close together, then it is easier to do without a single offer.
Is rethinking needed for such decisions? Was not it a playground for engineers that there are so many variants? It was less relevant because no one felt the complexity right. Only by switching to WLTP this problem has become more aware. The introduction of electromobility will inevitably increase the complexity of the product range. We will see many new hybrids and battery-powered vehicles.
Does not that also mean that the brands have to cooperate much more closely and thus have a life of their own? That the level of synergies we have not yet reached the zenith in recent years has long been clear. The pressure on margins has increased, also due to the electromobility. The stronger cooperation of the brands is a decisive way to the goal – namely to improve our return. We have not made optimal use of possible synergies in the past.
Is not that always a tightrope walk? The independence of brands versus the centralization of the group? I always understand this as an aid to self-help. If the brands can make use of the corporate shelf, then that is a significant relief. The corporation must intervene in cases where this is not enough. But that does not mean that the brands will be denounced. They play the essential role in direct contact with the customers. We still have some air in the synergies, and we’re letting that out now. We can no longer afford to spend more than competition on R & D and capital expenditures in terms of sales. That we are not at the optimum in terms of quotas, we have been saying for more than three years.
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But then 2018 was not a model year. In retrospect, the research and development cost ratio has even risen a bit. We have always said that in 2018 and 2019, technical advance payments will have to be made, for example, for electromobility. Now the basis is laid for reaching the new fleet limits for carbon dioxide emissions by 2020. So it was clear that we will not reach our six percent target yet. This goal will then be in 2020. In 2019, the value will again be in the corridor of 6.5 to 7 percent as in 2018.
They have the return target of the Volkswagen brand moved from six percent to 2022. Does this require additional efforts this year? There are various facets to this. One point is our productivity and efficiency goals. In South and North America, we want and must continue to make headway in reducing our losses. But we also have to constantly improve our sales performance. We will not be able to reach the return target through the costs alone. The whole is a process over time. We’re working on that, but we can not be satisfied with today’s yield levels.
Is now also increasingly saved in small things? The biscuits in board meetings fall away, color copies are deleted? One says not wrong: Small cattle also makes a shit. Symbolic changes also have their value. Everyone can see: We are not in normal mode. I think it’s okay that we question traditional patterns of behavior. Overall, however, it can also be said that the fixed costs of, for example, the Volkswagen brand have really worked well in recent years.
As far as diesel is concerned, the financial burden is slowly easing off – this development is best seen in the cash flow. So with the amounts that actually flow out of the company. Last year, that was 5.3 billion euros, which will be significantly lower in 2019 and 2020.
Do you still expect further provisions for the diesel affair? The assessment of risks is an ongoing process. All currently known and assessable risks have been taken into account. We now have just under € 29 billion in special items in the operating result from the diesel business. But of course there are always uncertainties. We are not through with the diesel issue yet, but we have made significant progress. Some years the subject will occupy us.
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Can it also be that Volkswagen once thinks about commodity investments? For the batteries of electric cars you need lithium and cobalt. Ten years ago, we certainly would not have discussed the involvement in a mine. But today we have a different situation, we may need to make such an investment. Entering electromobility is an integral part of our strategy.
How are you with the planned IPO the truck division Traton We will make a decision in the foreseeable future via the IPO. An IPO of Traton We strive for it unchanged, but as often confirmed not at any price. The conditions on the money and capital markets must also be right. The task to weigh up and evaluate is the task of the next days.
Who actually gets the money from an IPO? Always the seller, and that would be Volkswagen AG.
Mr. Witter, thank you for the interview.
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