VW truck unit gears up to global push with alliances
Volkswagen AG’s truck unit is pushing to reduce its dependence on its main European market and lift profit margins in a challenge to commercial-vehicle industry leaders Daimler AG and Volvo AB.
Future moves could include both acquisitions and entering more alliances, the unit’s head Andreas Renschler told reporters on Tuesday at the biannual international truck show in Hanover, Germany. VW’s commercial-vehicles division, named Traton AG, so far lacks the geographic reach of its two larger peers, with its U.S. presence limited to a stake in Navistar International Corp.
“We’re keeping all options open as part of our strategy,” Renschler said, adding his division had room to improve its profitability to achieve an average return on sales of 9 percent across industry cycles. “Traton is already the market leader in Europe and Latin America and we want to expand that position.”
Under Renschler’s leadership ,VW reorganized the division and will soon mandate banks and hire legal advisers ahead of a possible initial public offering. Renschler decoupled decision-making from VW’s larger cars division and has deepened cooperation between the Swedish Scania and the German MAN brands to lower costs. Similar efforts had often been undermined by internal rivalries in the past.
Volkswagen rose 2.6 percent to close at 148.24 euros in Frankfurt trading, giving a market value of 74 billion euros ($86 billion).
Never Say Never
VW acquired a 16.8 percent stake in U.S. peer Navistar two years ago, laying the groundwork for a footprint in the North American market, the truck industry’s largest source of profits. Daimler’s Freightliner and Volvo’s Mack nameplates generate significant sales in that region.
While a takeover of Navistar “isn’t currently on the agenda,” it’s a case of “never say never,” Renschler said. In a subsequent Bloomberg TV interview, he said he’s “very happy” with the progress on cooperating with Navistar.
Traton is pursuing a strategy to lift its profitability, trailing a target of 9 percent average profit margin after returning 6.9 percent on sales last year for an operating profit of 1.7 billion euros. VW’s trucks unit and its alliance partners combined produce about 422,000 heavy-duty vehicles, offering more opportunity to generate economies of scale than any peer, Traton Chief Financial Officer Christian Schulz said. That’s possible even without owning an equity stake in the partner company, he said. The main focus is on engines and powertrains, which account for some 60 percent of vehicle costs.
Traton has forged an alliance with Japan’s Hino Motors Ltd. this year and earlier Tuesday announced it will establish a joint-venture with its Chinese partner Sinotruk Hong Kong Ltd. MAN bought a 25 percent stake in Sinotruk some years ago, but so far had little influence in any business decisions. Cooperation efforts in China, the world’s largest commercial vehicle market, don’t have to be restricted to Sinotruk, Renschler said.
The trucks business has a value of about 28.5 billion euros, according to Bloomberg Intelligence, comprising the Scania and MAN truck and bus marques as well as a business in Brazil.
German rival Daimler, the maker of Mercedes-Benz luxury cars and also the world’s largest truckmaker by revenue, is adopting a new corporate structure as well that will grant its truck business more independence. But executives have remained tight-lipped so far about a possible IPO of a minority stake. Daimler officials have denied any plans for a complete spinoff.
Renschler said both Scania and MAN have potential to improve profit margins. Scania already generates some of the truck industry’s highest returns of 10 percent. MAN has undergone several cost-cutting rounds in recent years and earnings have started to improve, but still remain well below Traton’s 9 percent target.
Traton is hosting an investor day in Hanover on Thursday.