Manufacturing News

VW will roll out new Chinese SUV globally

Volkswagen plans to sell the compact SUV it developed with Chinese partner SAIC Motor Corp. across the globe, intensifying a push into the lucrative and fast-growing category that will help fund its electric-vehicle initiatives.

The new model, dubbed the Volks-SUV for now, will be introduced in China in August, Herbert Diess, who heads Volkswagen AG’s main brand, said Wednesday at a press conference at the carmaker’s headquarters in Wolfsburg. Additional production will start in Argentina, Mexico and Russia as of 2020. The goal is to sell 400,000 Volks-SUVs per year, Diess said.

“We have high expectations for this car,” Diess said in a speech. VW is also unveiling an updated version its flagship Touareg SUV in China next week. A new subcompact model dubbed T-Cross will be added at the end of this year. “In almost all regions we will almost double our SUV offerings by 2020,” Diess said.

The move underscores the twin pillars -- China and SUVs -- of VW’s effort to reposition itself after the 2015 diesel emissions violations shattered the brand’s reputation and cost about 2.8 billion euros ($3.5 billion) last year. The world’s largest carmaker has expanded headlong in the country, now the biggest automotive market, even as sales in the U.S. remain far behind rivals.

Boosting its SUV and crossover offerings also helps the brand, which makes up more than half of Volkswagen group’s global deliveries, to lift profit margins companywide while developing key technology for sister nameplates including Audi, Skoda and Seat. VW is relying on sales in the segment to generate the funds it needs to create electric vehicles and boost digital services that will reshape the marketplace over the coming decades.

VW will widen its SUV lineup to 20 models by 2020 and expects those vehicles to account for 40 percent of sales volume by then. It will introduce more than 10 fully or partly battery-powered cars in China in the same timeframe. Diess has pledged to make VW’s electric cars much more profitable than rival manufacturers by leveraging superior economies of scale and cost-efficient technology.

The division will invest 22.8 billion euros over the next 5 years, including some 6 billion euros alone on new technology and electric-car development. A big chunk of these funds will be spent on the planned fully-electric I.D. range.

The target for the operating margin is between 4 percent and 5 percent of sales this year, versus 4.1 percent in 2017, as cost synergies from sharing technology across vehicle lines accelerates and demand for SUVs remains strong. Shrinking losses in South America will also support earnings as the market recovers from a steep downturn along with savings from a labor pact signed in 2016, VW brand Chief Financial Officer Arno Antlitz said.

VW signed the landmark labor deal to slash bloated costs that has so far contributed some 2 billion euros in earnings improvement as part of a target of 3.7 billion euros in total by 2020. The company is making its vehicle manufacturing less complex and will cut 30,000 jobs worldwide, mainly through retirement, with Germany accounting for 23,000 alone. At the same time the company is adding thousands of jobs in new areas such as software engineering.

It’s also culled slow-selling models like the flopped Phaeton, the Scirocco and the three-door version of the small Polo hatchback to rein in bloated expenses.

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