The Silver Lining
David Glenn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amid the bright lights of the North American Auto Show in Detroit, perhaps its brightest star treads the boards quietly. Volkswagen AG (NASDAQOTH:VLKAY) has consistently defied the expectations of the market, Volkswagen heads into its third year of consecutive months of year-on-year growth, which has moved the German Automaker into third place among the automotive royalty, behind Toyota and perennial leader General Motors (NYSE: GM).
Not content just to show at the party, unnamed Volkswagen officials point upwards predicting the company to be in the number one spot by 2018. Bold talk you say? Perhaps, but in one of the toughest automotive markets of the post war era and with the European financial crisis on her borders, Volkswagen AG sold 9.07 million vehicles last year, setting a new sales record, with profit up by 11.2%. Volkswagen CEO, Martin Winterkorn, was humble in saying, "Volkswagen performed extremely well in difficult conditions,” which is CEO speak for, we’re good and we know it!
Dizzy Dean used to say, “It ain’t bragging if you can do it.” Volkswagen’s credit position has allowed the automaker to offer discount financing terms, winning sales from domestic rivals. Volkswagen’s achievement should be viewed in the lights of both Mercedes and Porsche, lowering their sales forecasts in the second half of last year. The BMW group also posted quality numbers up 8% over 2011, but their small unit numbers make BMW a walk on, in the presence of Volkswagen’s celebrity.
Sergio Marchionne CEO of Italian Automaker Fiat remarked on the overall market in a New York Times article last summer, "I've never seen it this bad,” he said, which is CEO speak, for it sure beats the hell out of me! then added, "It's a bloodbath of pricing and it's a bloodbath on the margins." He’s acknowledging that those in a good financial position are likely to prosper, at the expense of the less prosperous.
The South Korean automakers posted average year-to-date sales downward 7.5% in September. It would appear to be a flight to quality in the market, as both Mercedes and BMW (Xetra) sales have been strongest in their top end products. GM and Ford Motor Co. reported their best sales numbers in four years, only they haven’t been particularly good years and should be discounted accordingly. The secret of GM’s success has been in the Chinese market, where GM set a sales record of 2.6 million cars last year. GM’s success has not been unobserved, as Volkswagen leadership eye the Chinese market hungrily and will first need to conquer the Asian market before moving from the ranks of pretender to contender.
Can Volkswagen AG continue upwards against downward market pressure and take the number one automotive top spot in five years? As we’ve witnessed in our own domestic market, there have been winners and losers, the losers faded away and the winners consolidated their positions, as winners in the market place. It is logical to assume then, the same clearing process among Europe’s automakers. Consumers are holding on to their automobiles longer than ever before and the flight to quality should continue.
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