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Piech takes punch, VW stock revs up

2015-04-28 12:10

A YEAR EARLIER... April 25, 2014, VW CEO Martin Winterkorn (right) and VW supervisory board chairman Ferdinand Piech at VW's AGM in Hanover, Germany. Piech has now quit after a battle with Winterkorn. Image: AFP / Julian Stratenschulte

BERLIN, Germany - The weekend's resignation of VW's chairman Ferdinand Piech has given investors hope of revived profitability at its core division, a reversal of under-performance in other countries and the burying of lingering plans for acquisitions.

Piech, mastermind of VW's global expansion and for 20 years a towering figure within the German group stepped down on Saturday after losing a showdown he had provoked with chief executive Martin Winterkorn.

A survey by advisory firm Evercore ISI was said to have shown that almost 80% of VW investors now expected the 12-brand group's stock value to rise.

BILLIONS IN COSTS CUT

Preference shares in VW rose more than five percent, almost making up for a slide in value during the two-week boardroom battle. The shares were trading up 4.2% to €242.80 as of 1224 GMT.

Evercore ISI added that Piech's exit - he led VW's campaign to make everything from motorcycles to 40-ton trucks - had also curbed the risk of purchases while VW was cutting billions of euros off costs at its core brand and revamping operations.

Analyst Arndt Ellinghorst, who raised his recommendation on the stock to "buy" from "hold" said: "Piech's departure is good news for VW. It has a better chance to turn itself into a more profitable and valuable business."

Empire-building at VW, a company which only a year earlier took full control of Swedish truck-maker Scania, should play a smaller role in the post-Piech era, analysts said, noting that Piech had appeared keen to buy Fiat Chrysler's Alfa Romeo.

'COMPLEXITY HITTING WALL'

VW, under Piech's nine years as CEO, bought ultra-luxury brands Bugatti, Bentley and Lamborghini, integrated Spanish volume unit Seat, and raised its stake in Czech division Skoda. Ingo Speich, a fund manager at Union Investment which holds 0.6% of VW preference shares, explained:

"The sheer complexity of VW is starting to hit the wall. There are numerous trouble-spots there that need to be tackled urgently."

The relentless push for scale under the once-close Winterkorn-Piech alliance, which led VW to almost double sales to €202-billion in 2014 and nearly triple group profit, had papered-over structural shortcomings within the German behemoth, analysts believed.

Winterkorn wants to revive VW's flagging profitability and push cost-saving to €5-billion a year by 2017 as the group sheds its focus on sales volumes.

Ferdinand Dudenhoeffer, head of the Centre for Automotive Research at the University of Duisburg-Essen, wrote: "More than 600 000 VW workers build slightly fewer vehicles than market champion Toyota with 350 000 workers. The problems strike at the heart of VW."

FOCUS SHIFTS TO EARNINGS

To be able to keep generating cash to fund its global operations, among them upgrades and additions to a catalogue of more than 310 models, VW is shifting focus to earnings quality at the cost of abandoning a long-stated goal of becoming the global sales champion.

VW's group profit margin, with the recovery in core European markets gaining traction, climbed to perhaps 6.2% in the first quarter from six percent a year earlier, an analyst poll showed ahead of April 22's results.

A member of VW's 20-seat supervisory board told Reuters (on condition of anonymity): "Scale is important but the push for volume is anything but the sole parameter of management policy."

There are signs that VW's top management is starting to adjust strategy to overcome shortcomings in foreign markets. Two company sources told Reuters that preliminary talks with China's Great Wall Motors were held earlier in 2015 to explore the joint development of cheap vehicles to tackle VW's chronic weakness in South-East Asia and India.

Another company source said VW was working on a small SUV for Brazil, where such models are selling well, and intended to present a concept car in 2016.

Frankfurt-based Bankhaus Metzler analyst Juergen Pieper said: "VW has various trouble spots but the door now appears to be open for much needed change."


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