By Taras Berezowsky
While General Motors (NYSE:GM) and its European counterparts have been having some overcapacity problems in Europe, Volkswagen (OTCPK:VLKAY), Europe’s leading carmaker, is the shining star as far as Eurozone manufacturing — and sales success — goes.
VW reported record profits last week, amid speculation that the European auto market will contract once again in 2012 — the fifth consecutive year of contraction. Volkswagen’s profits doubled from the previous year to €15.4 billion ($20.6 billion), and revenue increased about 26 percent to €159 billion, according to this New York Times new hit.
In at least one way, it doesn’t matter to Volkswagen that the Eurozone is suffering: The company reported that its “two Chinese joint ventures, Shanghai Volkswagen and FAW-Volkswagen, together sold 2.26 million vehicles in 2011, up nearly 18 percent from 2010,” according to the article. Overall, the company broke the 8-million-vehicles-sold threshold for the first time, led by its VW and Audi brands; it clocked 8.27 million total sales.
While GM has been forced to begin talks with Peugot to cut costs (as my colleague Stuart reported on last week), VW seems to be sitting pretty with its extra stash of cash — but will the fuzzy feelings last for long?
The company has yet to fully report what happened in Q4 2011 for all ten of its brands — not just the high-flying Audi and VW marks — on March 12. A report in the Wall Street Journal maintains that 2012 will be a challenging year for all automakers, not just because of the down Eurozone economy (Moody’s forecast sees a 6.2 percent decline in 2012 y-o-y).
While the article quotes a Morgan Stanley analyst as saying that only VW and Hyundai should be profitable in 2012, a separate report indicates China’s not buying cars like it used to — auto sales fell 24 percent in the wake of the Lunar New Year, but potentially more worrisome, rose only 2.5 percent in 2011 to 18.5 million, according to the China Association of Automobile Manufacturers (CAAM).
Interestingly, VW may stand to gain a bit of a cash infusion from the European Central Bank (ECB) in the form of cheap loans to boost the Euro auto industry, according to BusinessWeek. (Peugot is also in line for the handout, but arguably, they need it much more.) In an interview, Stefan Rolf, VW’s head of securitization, said that the company is “considering accessing the LTRO” — an ECB program that is a cheaper source of cash than selling bonds.
Looks like even VW is hedging against another global downturn any way it can.