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Report: Volkswagen to Stop Focus on Growth, End Empire-Building

Automaker plans to streamline its manufacturing and brand portfolio

Automaker plans to streamline its manufacturing and brand portfolio

In an effort to help dig itself out of its emissions cheating scandal, the Volkswagen Group will reportedly review its portfolio and likely sell off some of its assets. Automotive News reports that the Volkswagen Group’s CEO, Matthias Mueller, is reviewing the company’s current strategies, which includes backing away from growth, move into car-sharing ventures, and putting more focus on the development of EVs.

In addition, the 12 brands under the Volkswagen Group along with side businesses will be reviewed to help the company navigate out of the largest crisis in its history. Component manufacturing will be consolidated into one division that builds parts for all Volkswagen Group brands, according to AN’s sources. The new unit would employ around 70,000 workers at over two dozen locations across the globe. Mueller revealed his plans to the supervisory board of the Volkswagen Group on Tuesday, and will brief the media on the matter this coming Thursday.

Arndt Ellinghorst, an analyst based in London working for Evercore ISI, told AN that there’s more happening at Volkswagen than most may think because of the emissions cheating scandal. Shares of Volkswagen’s stock in Frankfurt have increased by 40 percent since October 2015 when it was at its lowest after the emissions cheating scandal was revealed.

During the Volkswagen Group’s empire-building era, which was just before the emissions scandal hit, the company had acquired heavy duty truck manufacturer Scania, Ducati, and Porsche. AN also states that the focus on growth and the group’s rigid and centralized structure led to low profits for the Volkswagen brand itself. Additionally, the namesake brand itself struggled to keep with changes in the auto industry. The automaker faces another deadline in the U.S. next week regarding a fix for the diesel-powered vehicles with cheat devices. It has set aside $18.2 billion USD to pay for fines and expenses that it has incurred from the emissions cheating scandal.

For 2015, the company reported revenue of about 14.6 billion Euros or around $18.4 billion USD at today’s exchange rates from selling off some of its assets, including joint ventures with Chinese companies. However, one of AN’s sources said that selling Volkswagen’s components unit is currently not in the cards. The automaker was one of the pioneers of pooling together manufacturing resources and sharing platforms across all of the group brands, which also includes Bentley, Audi, Skoda, and Seat.

Some of Volkswagen Group’s noncore assets could be sold since it’s likely that the company could announce that it will review its brand portfolio, according to people familiar with the matter. So far there haven’t been any decisions made as to which divisions will be sold off, but the list could include Ducati, MAN Diesel & Turbo, and the propulsion company MAN Renk. Scania may also be part of that list along with the rest of the truck manufacturing entities currently under Volkswagen Group’s umbrella.

According to Richard Hilgert, an analyst for Morningstar, selling the truck operations of MAN and Scania may be well timed because of the high demand for commercial vehicles in Europe. Meanwhile, Ducati’s image as a well-respected motorcycle brand may make it a highly desirable asset and could lead to it selling for a large sum. Selling off parts of Volkswagen, however, is a sensitive topic because unions and the German state of Lower Saxony — which is the second largest shareholder of the Volkswagen Group — want the company to stay large and aren’t keen on seeing it shrink.

Volkswagen’s massive growth was the work of Ferdinand Piech, Martin Winterkorn’s predecessor who later served as the company’s chairman. Piech left during a management shakeup while Winterkorn followed suit after the emissions cheating scandal hit the company. Mueller, the current CEO, was the former boss of Porsche.

Source: Automotive News (Subscription required)