We told you they would.
Just as we predicted at the start of the year, Volkswagen has surpassed Toyota as the world’s largest automaker. Sales for the first half of the year has been announced and VW sold a total of 5.04 million cars against Toyota’s 5.02 million, leaving General Motors firmly in third spot. Toyota has seen its supremacy challenged for a number of reasons, not least the changing economic climate within dealerships that led to ever decreasing profits; this is happening as competition between brands heats up and sales growth, particularly in China, slows down. There has also been the small issue of countless product recalls in the past few years that must have distracted the Toyota management team.
Of course there is no prize or trophy for being the largest carmaker in the world. The title is purely symbolic but it is, in effect, a gauge of the success of global strategies. So, for now, VW will have the bragging rights and will be able to communicate that they are the largest and thus have the best products and strategy. A powerful statement indeed.
VW CEO Martin Winterkorn has long wanted the company to seize the No. 1 spot by 2018, but a spokeswoman declined to plant a triumphant flag in the news. “We do not comment on the figures of other automakers,” the VW spokesperson stated. “The goal of the Volkswagen Group is to focus on qualitative growth and not being No. 1 in sales.” Which is of course a very Teutonic response.
Boosting sales and production volume will bring a myriad of benefits, including the ability to amortise costs over a much larger footprint which should lead to increased profitability. But it can also reduce profits if the automaker is in the game of ‘buying’ market share by either trade or end-user incentives, designed to give dealers or customers a jolt to bring the sales in, and of course there is much evidence that VW has indeed being doing this.
“I think the race for volume is the wrong race. I think the race for profitability is the right race,” AutoTrader.com analyst, Michelle Krebs, said. “So if I were running an automaker, that’s the number I would be looking at. Because sales volume you can buy.”
I doubt if Toyota is all that concerned at the moment after they reported profits of 10.1% on turnover for the financial year that ended March 2015, a figure that make the Japanese manufacturer the envy of the industry. Over the same period, the VW Group was only able to achieve a 6.3% profit margin.
“Sales volumes or being the largest global automaker has never been a goal for Toyota,” Scott Vazin, a Toyota spokesman said. “Our focus is on getting our products and services right for our customers and ensuring we are exceeding their needs and expectations. We congratulate VW on achieving its stated goal.”
In spite of overall global success, VW has struggled in another important market for car sales, the US of A, which is seen as the world’s most lucrative market for car sales. Experts say that the VW brand lacks sufficient variety and quality to truly compete with its Japanese rivals. Sales for the VW brand in the US of A fell 10% in 2014, despite a 5.9% gain in overall industry sales. For the first six months of 2015, VW sales fell 2.6%, compared to a 4.4% increase for the overall industry. By contrast, US sales for the Toyota brand rose 5.8% in 2014 and 5.2% for the first half of 2015.
In the 2015 J.D. Power and Associates Initial Quality Study, which examines new vehicles, VW’s namesake brand ranked 24th out of 33 brands sold in the US. The Toyota brand was 10th.
The US market has reflected one of VW’s few significant slip-ups; the company has claimed the top spot in China, the world’s largest vehicle market, with aggressive marketing of credit-free payments, and remains dominant in Europe.
Some analysts have likened the US to “an emerging market” for VW, which hasn’t introduced new vehicles quickly enough in the US and has failed to capitalize on the crossover movement. In short, the story for the VW Group in the US is so different to their global story of success.
The big question is can VW hold on to the top spot to the end of the year as the new market gets tougher in the second half of 2015. So far this year, the German automaker’s global sales fell 0.5% compared to the previous year, as tough economic conditions took a toll in foreign markets, such as South America and Russia. Perhaps most notable though is the reduction of 3.9% in China for the first half of the year as the Chinese economic miracle has lost some of its sparkle. For the same period, Toyota lost just 1.5% compared to last year and thus may be planning a late surge to pip VW at the post.
image: Julian Stratenschulte, EPA via USA Today
