November 22, 2012 / 2:08 PM / 8 years ago

VW to keep investing in bid for world dominance

BERLIN (Reuters) - Volkswagen (VOWG_p.DE) is expected to increase planned investment in new vehicles and factories, looking beyond a European slump to its long-term goal to be the world’s largest car maker.

Logo of German carmaker Volkswagen, is pictured at the IAA truck show in Hanover, September 18, 2012. REUTERS/Fabian Bimmer

While the multi-brand group is less exposed to austerity-hit Europe than rivals PSA Peugeot Citroen (PEUP.PA) and Fiat FIA.MI, finding the cash to achieve its goal is becoming harder and it has to balance keeping a tight rein on short-term costs with the need to develop new products.

VW’s 20-member supervisory board is due to sign off on new spending targets for 2013-17 on Friday.

Wolfsburg-based VW is expected to increase spending by 12 percent to as much as 70 billion euros ($89.73 billion) for its twelve brands over the next five years, compared with 62.4 billion for the 2012-16 period agreed a year ago, analysts said.

That would be a record level, but also represent a slowdown - the spending target was raised 20.9 pct to 62.4 billion euros from 51.6 billion euros for the 2011-15 period.

“Pressure to cut costs is definitely higher in such difficult times, but we must keep up spending to meet our expansion goals,” Peter Mosch, top labor leader of VW’s Audi division and a member of VW’s supervisory board, told Reuters.

By stepping up investments on products and technology, VW could consolidate its lead over stricken Mediterranean peers Peugeot and Fiat, which have slowed or shelved whole vehicle programs, engine technologies and platform revamps while grappling with high fixed costs in a shrinking European market.

VW’s strong sales elsewhere have allowed it to offer cut-price deals and swell its share of the battered European market to almost a quarter.

VW spokesman Marco Dalan declined to comment on the company’s new spending plans.

As VW strives to replace Toyota Motor Corp (7203.T) as the world’s number one auto maker no later than 2018, it keeps increasing its presence outside Europe, building or planning new factories in markets such as China, Mexico and Russia.

Growing technology needs, foreign expansion and the integration of sports car maker Porsche and truck maker MAN SE will make for high levels of spending in the years ahead, Metzler Bank analyst Juergen Pieper said.

But even with net cash of 9.2 billion euros at the end of September and an expectation of matching last year’s record operating profit in 2012, VW has to keep a tight rein on costs.

It may delay certain projects but it will keep up underlying, strategic investments, LBBW analyst Frank Biller said: “VW will maintain its pretty high pace of spending.”

In the short-term, VW is halting production of the Passat model at a German factory in Emden between December 17 and December 21, after shuttering the plant for two days in October as part of a wider move to cut group output by about 300,000 vehicles to 9.4 million cars this year.

Plans by VW’s ultra-luxury brands Bentley and Lamborghini to develop sports utility vehicles (SUV) may be put on hold by the German parent to save cash, after VW’s third-quarter profit plunged by a fifth, company sources said.

“One definitely has to fight for investments (with parent VW),” Audi works council boss Mosch said. “It cannot always be like a request show where everyone makes a wish.”

Reporting By Andreas Cremer Additional reporting by Jan Schwartz in Hamburg; Editing by Helen Massy-Beresford

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