Volkswagen’s spending blitzkrieg

AMBITIOUS Volkswagen Group is planning to splash a company record €62 billion ($A82b) on cars, technologies and factories over the next five years in its drive to overtake General Motors and Toyota as the world’s biggest motor manufacturer.

Almost €50 billion ($A66.4b) will be spent on new plants and equipment as its lays the foundations for a new generation of vehicles, including the Up mini car family that is set to go into production next year.

And if that is not enough, the German giant – Europe’s biggest carmaker – has earmarked a further €14 billion ($A18.6b) under a separate arrangement with its Chinese joint-venture partners, taking the overall spend to €76 billion ($A101b).

This is up from €61.6 billion in the five years to 2015 under a previous plan.

The huge outlay, which accounts for six per cent of projected sales revenue, was signed off by the VW supervisory board in Germany on Friday and announced by CEO Martin Winterkorn, who said the company priority was to take global leadership in eco-friendly motoring.

“The Volkswagen Group is investing a record amount in forward-looking projects to achieve its goal of becoming the world’s best automobile manufacturer in economic and ecological terms,” he said.

“We shall continue to extend our innovation and technology leadership. Top of the agenda for us are investments in environmentally friendly, sustainable models and drives [powertrains].”

Left: VW CEO Martin Winterkorn with the XL1 concept. Below: The NILS EV concept and e-Up EV from the 2011 Frankurt show.

VW Group has sold more than 5.3 million vehicles globally so far this year, up 14 per cent on the first eight months of last year.

About a quarter of those sales were in China, where VW’s runaway growth has steadied to 10.6 per cent this year as the world’s biggest car market cools.

This year, VW has leapfrogged earthquake-battered Toyota into second place behind GM, although Toyota expects to come back strongly in the second half with Japanese production restored to normal levels.

VW has a long-term target of 10 million vehicles a year by 2018 and is within reach of eight million units this year, unless the European economy goes into meltdown. Last year, it sold 7.2 million vehicles.

While VW has one cautious eye on the short-term Euro zone financial situation, it is forging ahead with plans to expand in almost every direction in the five years from 2012 to 2016.

In Germany, investment will focus on plant upgrades, alternative drives, new generations of diesel and petrol engines and new generations of Volkswagen’s innovative direct-shift gearboxes.

Two-thirds of the global capital investment will go on property, plant and equipment to modernise and extend the product range for all VW brands, ranging from Seat and Skoda to Porsche and Bentley.

“The main focus will be on new vehicles and successor models in almost all vehicle classes, which will be based on the modular toolkit technology and related components,” VW said in statement.

“This will allow the Volkswagen Group to systematically continue its model rollout with a view to tapping new markets and segments.

“In the area of powertrain production, new generations of engines will be launched offering additional enhancements to performance, fuel consumption and emission levels.

“In particular, the group will continue to press ahead with the development of hybrid and electric engines.”

VW said it will also invest in wind, solar and hydroelectric power generations to supply the factories with renewable energies.

VW plans to double vehicle sales in the United States, where its sales have slipped since the 1970s when its original Beetle was a small-car hit.

A new plant recently opened in Chattanooga, Tennessee, to build the new-generation Passat, will be a key to the plan, along with the fresh Jetta made in Mexico.

In China, VW has already announced plans for two more Chinese production facilities, bringing its total to 11, and is considering more. A new plant is also planned for Russia.

Meanwhile, VW’s “strategic partnership” with Suzuki is set to end in divorce, with the Japanese company demanding to buy back the 19.9 per cent slice of Suzuki shares that VW took in December 2009.

VW brought the matter to a head earlier this month when it issued “notice of an infringement” under the terms of its agreement after Suzuki announced it was planning to buy four-cylinder diesel engines from Fiat, instead of VW.

“Volkswagen takes the view that this contradicts the terms of the cooperation agreement,” said VW in a statement.

“Suzuki has now been given a period of several weeks to remedy the infringement. Volkswagen considers this step regrettable, but necessary, and has offered to discuss the matter with Suzuki.

“At the same time, the company stresses it still regards Suzuki as an attractive investment.”

Suzuki responded that the Fiat agreement predated the VW partnership and has now effectively sued for divorce.