NOTE: Free essay sample provided on this page should be used for references or sample purposes only. The sample essay is available to anyone, so any direct quoting without mentioning the source will be considered plagiarism by schools, colleges and universities that use plagiarism detection software. To get a completely brand-new, plagiarism-free essay, please use our essay writing service.
One click instant price quote
... year. At $ 45, VW stock is about where it was in the spring of 1997. Rolf Drees, a financial analyst at Germany's third-largest fund, Union Investment, which owns a 1 % stake in VW, says the return on VW stock in the three years to the end of 2000 was an average annual 5. 2 %, using dividends plus the change in the stock price.
That's just a third of the 15. 3 % return on the blue-chip DAX index over the same period. HARD SLOG. A swift boost to the stock is a hard feat to pull off. The government of Lower Saxony, the biggest investor, worries more about jobs than shareholder value. Five of VW's seven German factories are located in Lower Saxony, and they " re among the least productive in Europe.
According to World Markets Research Center in London, production at the Wolfsburg plant runs at 46 cars per worker per year, compared with 101 at Nissan Motor Co. 's (NSANY) British factory in Sunderland. Pich would love to change that. In 1993, to buy labor peace, he cut the workweek at VW's German plants from 35 hours to 28. 8. That saved 30, 000 jobs.
But now VW workers can make upwards of $ 34 an hour. Pich is trying to push through a plan to lower the base wages of new German workers and link them to output instead of hours. If this doesn't succeed, VW threatens to put new projects in places such as the Czech Republic, where wages are less than one-third German levels. Cutting such a deal is turning into a hard slog. The unions concede they need to be more flexible. But they are resisting management's demands to increase the workweek to more than 40 hours during peak production without paying overtime.
Profitability has remained an issue even though Pich has worked hard to cut costs in other ways. Soon after he arrived, he decided to build all Skoda, Seat, VW, and Audi cars on four shared platforms, or chassis components. The Golf, Skoda Octavia, Beetle, and even the Audi TT roadster share platforms. The strategy has helped save up to $ 1. 5 billion a year.
Now, VW plans to share brakes, transmission, and other systems. "We can save billions of marks with these strategies, " says Martin Winterkorn, VW's research and development chief. Sharing the ingredients, however, may have harmed some of VW's own marques, as some consumers conclude that cars sharing platforms are sisters under the skin. Although hard to prove, it seems that some potential VW and Audi customers in Europe end up going for lower-priced Skoda's and Seats. Since 1996, Skoda's share of the European market has more than doubled, to 1. 5 %, while the VW brand's share dipped slightly. "Skoda's image of 'value for money' is too close to VW's brand image, which hasn't been moved upmarket fast enough, " says a German auto consultant.
VW also has gaps in its product lineup. It has nothing to offer in the category of compact minivans -- the scaled-down versions of minivans that are popular in Europe. A sport-utility vehicle will not come out until 2002. "We " re [also] missing some niche models -- sports car, roadster, another convertible, " says Jrgen Lehmann, manager of the Autohaus Moltke dealership in Stuttgart. VW has to sort out these issues while the competition gets tougher. According to market researchers J. D.
Power & Associates, Renault, Peugeot (PEUGY), and Ford of Europe have closed the quality gap with VW. What's more, luxury auto makers are venturing downmarket. Mercedes is expanding the $ 18, 000 A-Class, while BMW has rolled out a $ 14, 000 Mini and has a compact in the works. With the markets weakening, VW's next CEO will find it hard to keep boosting profits, especially if VW produces too many cars this year. According to Merrill Lynch & Co. VW's factory sales to dealers rose by 4. 6 %, whereas dealers's ales to customers nudged up only 0. 7 % in the first quarter.
And production jumped 13. 4 %, Merrill Lynch reports. "There's a big disparity between what they " re producing and what they " re selling, " says analyst Zee Tull. Higher sales to dealers boost short-term profits, and the first-quarter results were impressive, surging 57 %, to $ 330 million. But "payback can be brutal" if production must be slashed later, according to the Merrill report. VW says the gap between production and sales narrowed in April and May, and the company predicts its half-year results will show production and sales in closer alignment. Pich has vowed to cut costs by about $ 1 billion this year. He has not specified how.
A less-than-premium stock performance is not an immediate threat to the company. But if VW ever wants to use its stock to acquire another caretaker or expand further into the truck business, it needs a high share price. Also, the European Union is scrutinizing a German law that specifically bars any VW shareholder from voting more than 20 % of the stock. If the law is repealed, VW could be vulnerable to outside pressure. For the time being, Lower Saxony's clout and the voting limits shield VW's management. "If you look at the supervisory board, you see all the union and local state people... it's not sufficiently profit-oriented, " says Union Investment's Drees.
It all spells a big headache for Pich's successor. While speculation lingers that Pischetsrieder might be upstaged at the last minute, the bigger issue is whether he or any new CEO will be able to set his own strategy and unleash more of VW's earnings potential. At the least, Pich's presence in the background will complicate the succession. Pischetsrieder has sterling qualifications.
He played an important role in revamping BMW's factories into models of flexibility and efficiency. Pich hired him last July and named him head of Seat, VW's Spanish brand, and put him in charge of group quality. That was after Pischetsrieder lost his job at BMW, taking the fall for the acquisition of Rover, the floundering British caretaker. Critics say Pischetsrieder was dominated by BMW's supervisory board chairman, Eberhard von Kuenheim, who had been CEO for 23 years and fully backed the Rover acquisition.
As the deal soured, detractors dubbed Pischetsrieder "der Zauderer" -- the ditherer. Former colleagues say Pischetsrieder is very much his own man, but there's some doubt whether he will be able to stand up to Pich. In a long year as heir apparent, Pischetsrieder has discreetly withstood the glare of publicity. That's probably smart. But the uncertainty about VW's next boss adds to the doubts surrounding the future of one of Europe's great companies. Back to the Future at Valeo The struggling auto-parts maker un retires a fierce leader For years, auto makers considered Valeo one of the best European suppliers.
When other car-parts manufacturers balked at demands for price cuts and productivity gains, Volkswagen held up the ultra-efficient, Paris-based Valeo as a model. The world's No. 10 supplier, Valeo produced innovative and quality components at attractive prices. No longer. Since Valeo's formidable No& eur; l Goutard retired as CEO on May 25, Valeo has run into problems integrating new businesses and meeting delivery deadlines. Now VW expects to slash Valeo's share of contracts for headlights and interior lights across its model range to 20 % from 70 %. The German caretaker plans to cut big orders for windshield wipers, too. "We " re very concerned about what's happening there, " says a senior Volkswagen official.
VW isn't the only company alarmed by the deterioration at Valeo. Just about all its customers worry that the problems at the $ 8 billion company, Europe's No. 2 supplier, will shift the delicate balance of power in the industry. The main fear is that if Valeo loses its edge or falters, Stuttgart-based Robert Bosch, Europe's leading parts maker, with $ 20 billion in sales, will emerge with an even stronger bargaining position. Meanwhile, Valeo's investors are worried about the outlook for the company, whose profits sank 35 % in 2000, to $ 326 million. The stock has sunk nearly as much over the past year. TOO SLOW.
Granted, it has been a miserable spell for all auto-parts suppliers. CEO Andre Navarri, Goutard's hand-picked successor, took over at a treacherous time, with raw-material costs rising just as carmakers stepped up demands for price cuts. But company insiders say Navarri floundered, responding too slowly to quality problems in the lighting division and leaving key slots unfilled. That was also the view of French holding company CGIP, Valeo's biggest shareholder, with 20 %.
It forced the issue at a Mar. 21 board meeting that led to Goutard's comeback and Navarri's ouster after only 10 months on the job. "The board felt that Navarri wasn't reacting fast enough to the pressures on prices, volumes, and the worsening conditions in the sector, " says Christine Dutreil, spokeswoman for CGIP, the holding company for the interests of Ernest-Antoine Seilliere, head of the powerful French employers' federation. Goutard, 69, is jumping at the chance to return, though he won't be coming back as CEO. For that job, the board tapped Thierry Morin, Valeo's chief operating officer and Goutard's former right-hand man. But the board will propose to shareholders on May 9 that Goutard head a new supervisory board overseeing corporate strategy. One of France's toughest business leaders, Goutard transformed Valeo from a sleepy $ 1 billion supplier dependent on the French car industry into a global player with $ 6. 8 billion in sales.
His biggest deal, the $ 1. 7 billion acquisition of ITT Electrical Systems in 1998, positioned Valeo as one of the leaders in the fast-growing and lucrative business of automotive electronics. But that deal turned into a disaster for Navarri. The U. S. business dragged down Valeo's results as Navarri struggled to restructure ITT's bloated and inefficient factory in Rochester, N. Y.
According to investment firm Morgan Stanley Dean Witter, the absenteeism rate at the Rochester factory was at least four times higher than that of Valeo's operations in Mexico. Its quality performance was 10 times lower. Investors hope Morin will move quickly to cut costs at ITT -- with help from Goutard, who is respected for his focus on cost and quality controls. BOSCH BASHER? European auto makers, too, are pleased with Goutard's comeback. They think that a revitalized Valeo will reduce Bosch's dominance of the European auto-parts market.
Bosch's clout became painfully evident over the past year when auto makers rushing to build diesel-powered cars had to abide by the German company's timetable for delivering direct-injection systems, which no one else in Europe makes now. Renault, for one, shifted some business from Bosch to Delphi Automotive Systems Corp. , the global leader. "In diesel, Bosch has been ruling the roost, " says John K. Lawson, auto analyst at Schroder Salomon Smith Barney. Auto makers don't want Bosch to gain the same clout in automotive electronics.
It's already the leader in Europe after developing huge hits such as an electronic stability program to keep vehicles from rolling over. One of Goutard's priorities will be to refocus Valeo on electronics while shedding some of its more prosaic businesses, which include clutches and door locks. Goutard is back in the fray. Now he must make sure Valeo prevails.
Free research essays on topics related to: merrill lynch, auto parts, holding company, cut costs, auto makers
Research essay sample on Merrill Lynch Auto Makers
