Volkswagen to Invest 84 Billion Euros on Automotive Unit

The German group said on Friday it would invest 84.2 billion euros ($113.4 billion) in its automotive division over the next five years. That equates to 16.8 billion a year, little changed from the 16.7 billion announced last year for 2013-2015.

While spending to meet the group's emissions targets is up on last year's forecast, investments in property, plant and equipment are around 500 million euros a year lower, Europe's biggest carmaker said, pointing to the postponement of some unspecified construction projects and better use of capacity.

Investment in product and technologies will be unaffected, Volkswagen (VW) added, while its two joint ventures in China - the world's biggest car market and the engine of the group's recent growth - will continue to invest heavily.

"VW is reinforcing cost discipline, with greater emphasis on core product spending," said M.M. Warburg analyst Marc-Rene Tonn.

Compared with European rivals Fiat and PSA Peugeot Citroen, VW has weathered the European car market's six-year slump well, thanks mainly to luxury marques Porsche and Audi, which account for only 15 percent of sales but contributed two thirds of profits so far this year.

But some analysts have expressed concern that VW's market share gains in Europe have been bought by heavy discounting, and scepticism is creeping in whether a new manufacturing platform aimed at cutting costs across the group's brands will deliver the promised benefits.

With the costs of that platform, as well the discounts and a stronger euro eroding profits, analysts had expected some cost cutting on projects not related to model development.

"In times like these, our disciplined cost and investment management will remain a cornerstone of our activities," VW Chief Executive Martin Winterkorn said on Friday.

CHALLENGES

VW, with 12 brands and 105 factories, has a fleet of some 300 models that ranges from budget Skodas and SEATs, through the VW Golf, Europe's best-selling car, to buses and trucks carrying the MAN and Scania badges.

However, even with net cash of 16.7 billion euros at the end of September and a goal of matching last year's record operating profit, the group faces a battle to overtake Toyota and General Motors and become world number one by 2018.

VW finance chief Hans Dieter Poetsch said last month he did not expect a quick rebound in Europe's car market, which accounted for almost 40 percent of 10-month group vehicle sales, although auto sales in the region swung back to growth in September and October.

The Wolfsburg-based company, which is rolling out about 60 new and redesigned models this year, was also dealt a blow last week by news it was recalling over 2.6 million cars worldwide to fix a variety of problems.

Almost 60 percent of VW's spending on property, plants and equipment in the auto division will focus on Germany, it said.

Its Chinese ventures, which are not consolidated, will spend an additional 18.2 billion euros from 2014 to 2018, it added.

VW shares closed around 0.5 percent lower at 195 euros, within a broadly flat European blue-chip index.

($1 = 0.7429 euros)

(Additional reporting by Maria Sheahan; Editing by Mark Potter)

Volkswagen to invest EUR 84 billion on automotive unit

The German group announced Friday that it intends to invest EUR 84.2 billion ($ 113.4 billion$) in its automobile division over the next five years. This is equivalent to 16.8 billion per annum, little changed since the 16.7 billion advertised year last for 2013-2015.

While expenditure to meet the objectives of programming of the group is upwards on predictions last year, investments in property, plant and equipment are about EUR 500 million per year lower, largest manufacturer of Europe, said, pointing to the postponement of some construction projects not specified and better capacity utilization.

Investment in products and technologies will be affected, Volkswagen (VW) said, while its two joint ventures in China - the world's largest automobile market and engine of the recent growth of the group - will continue to invest heavily.

"VW is strengthening the discipline of cost, with greater emphasis on basic product, spending", said analyst M.M. Warburg Marc - Rene Tonn.

Compared to rival European Fiat and PSA Peugeot Citroen, VW has SAG's six years on the well resisted European automobile market, thanks mainly to the luxury brands Porsche and Audi, which represent barely 15% of sales but contributed to two-thirds of the profits so far this year.

But some analysts feared that the gains of market shares of VW in Europe were purchased by updating heavy, and skepticism seeps into whether if a new production platform aims to reduce costs through the Group's brands will deliver the promised benefits.

With costs of this platform, so discounts and a stronger euro, eroding profits, analysts had expected a reduction of costs on projects unrelated to the development of a model.

"In times like these, our disciplined cost and investment management will remain the cornerstones of our business," CEO of VW, Martin Winterkorn said Friday.

CHALLENGES

VW, with 12 brands and 105 factories, has a fleet of about 300 models ranging from budget Skodas and seats, through the VW Golf, the best-selling car of Europe, for buses and trucks carrying the badge MAN and Scania.

However, even with a net cash position of 16.7 billion euros at the end of September and a goal to equal the record of last year earnings from operations, the group is facing a battle to overcome Toyota and General Motors to become the world number one by 2018.

VW finance Chief Hans Dieter Poetsch, said last month that he had expected not a rebound rapidly in the automotive market of Europe, which accounted for almost 40% of sales of vehicles from the Group of 10 months, although sales of automobiles in the region swung reunites with growth in September and October.

The Wolfsburg-based company, which runs to about 60 new and redesigned models this year, also brought a blow last week of news it was recalling more than 2.6 million cars around the world to solve various problems.

Almost 60% of VW expenditures on property, plant and equipment of the auto division will focus on the Germany, he said.

Its Chinese businesses, which are not consolidated, will pass an extension EUR 18.2 billion from 2014 to 2018, he added.

VW shares closed about 0.5 percent lower at 195 euros, in a European flat broad index.

($1 = 0,7429 euros)

(Additional reporting by Maria Sheahan; Edited by Mark Potter)