VW: Will switch focus to profits
Volkswagen, Europe’s biggest auto manufacturer, has been admired by investors for its engineering skills, but criticized for its lack of devotion to the bottom line.
Its value on stock markets has languished compared to other leading contenders in the auto business. One investment bank has been fantasizing about how this could change if FCA, formerly Fiat Chrysler Automobiles, lent VW its CEO Sergio Marchionne, famous for his acuity at financial wheeler dealing
“What if the best-in-class financial engineer and the best-in-class auto engineer were to swap jobs,” said Commerzbank analyst Daniel Schwarz.
Schwarz, in a report, wondered about the possible increase in VW’s share price if Marchionne were to replace leading engineer VW Group CEO Martin Winterkorn for a while.
Schwarz said Fiat needs its product pipeline filled up with great engineered cars; over to Winterkorn.
“The Ferrari spin-off is just the latest masterpiece in financial engineering and shareholder value maximization. On the other side, VW owns many assets that used to trade on the highest multiples – Porsche, (and truck companies) Scania, MAN – but the integration never had a positive impact on VW Group multiples,” Schwarz said.
• Spin-off trucks, and separately list Porsche, which has faster growth and more profits than Ferrari.
• Separately list Chinese joint ventures which would be worth 197 euros per VW share.
(VW shares closed at 182.55 euros on the Frankfurt Stock Exchange Friday; Commerzbank’s idea would more than double the stock market capitalization of VW).
“Financial engineering would not make VW a better company, but easily a more expensive one. No, we do not think it is going to happen, but VW has announced it will switch the focus from growth to profitability; we think this will help to unveil more of the value,” Schwarz said.
Schwarz said VW is a cheap stock in the autos sector, but it owns many assets which used to achieve relatively expensive stock prices. Fiat has spun off trucks and the CNH subsidiary, now Ferrari, while the Fiat portfolio was slashed. The Chrysler deal turned out to have perfect timing. And the result?
VW is too cheap and doesn’t reflect its high exposure to the premium segment. Fiat is too dear, Schwarz said.
In the summer, VW and FCA denied reports that they were going to merge.
At the time, experts liked the idea because if Volkswagen did buy FCA it would instantly achieve its storied leader Ferdinand Piech’s ambition to leap-frog over General Motors and Toyota to become the biggest car company in the world. And the family owners of FCA would cash-in an instant profit, rather than wait years for Marchionne’s controversial long-term plan to work.
Volkswagen has been an enthusiastic acquirer of brands and now has 12 car, truck and motorcycle companies as Piech pushes the company towards its goal of world leadership by 2018.
For VW, the deal would have created instant scale in the U.S., where it has struggled to make an impact. Dodge and Jeep would give it an entry into the profitable pickups and boost its SUV lineup.
Meanwhile, Schwarz, despite realizing that his wish won’t be happening any time soon, retains his “Buy” recommendation on VW’s shares.