- Source: Porsche

Volkswagen is having internal issues with profitability

News out of Germany today indicates that Audi is going to take control of Bentley. But that's only the beginning of their problem.

34w ago

Volkswagen is one of the biggest, if not the biggest, automotive groups on gods green earth. And they are by far the biggest luxury automotive group on earth. But bigger isn't always necessarily better. In fact, untamed growth is almost always certainly the single biggest destroyer of business in history. If you grow way too quick and don't control said growth you encounter all sorts of problems.

Volkswagen has amassed its empire over almost a century. But they are having similar problems to that which a company with massive short term growth might have.

That is not Volkswagen. Volkswagen has amassed its empire over almost a century. But they are having similar problems to that which a company with massive short term growth might have. Things like severe under and over-performance in different sectors specific models being profitable while others just aren't and a lack of will to control any of those issues.

Part of the big problem with Volkswagen, as anyone who's familiar with who owns who in the incestuous world of automotive, is that while none of Volkswagen's brands claims to compete with each other? The specific cars do. It's like standing over a murdered person with a gun and saying you didn't shoot them. No-one is actually going to believe that you weren't the murderer and it really doesn't matter whether you actually did it or not.

Let's take a run through cars throughout the Volkswagen Group that inadvertently undercut the other Volkswagen cars. There's the Volkswagen Polo, the SKODA Fabia and the Audi A1. The Volkswagen Golf, the SKODA Kamiq and the Audi A3. The Audi TT and the Porsche Boxster. The Volkswagen Tiguan, the SKODA Kodiaq, the Porsche Macan and the Audi Q5. The Volkswagen TRoc/T-Cross, SKODA Karoq and the Audi Q3. The Volkswagen Touareg, the Audi Q7 and the Porsche Cayenne. The Porsche 911, the Audi R8 and the Bentley Continental GT. The Audi E-Tron GT and the Porsche Taycan.

That list keeps going for another couple of pages and I'm not going to take up your time boring you with Volkswagen vehicle comparisons. I mean we haven't even made it properly to Bugatti, Lamborghini and Bentley yet. But it's confusing, and everyone knows it, including Volkswagen.

But last month there was a rumour floating around that almost made me rejoice. Volkswagen was considering selling Lamborghini and Bugatti. That makes a hell of a lot of sense for Volkswagen. Neither are high volume brands, both are ultra-expensive to both produce and sell and they still compete with other products on the Volkswagen line. Alas, this morning it seems that these hopes of mine that Volkswagen is going to start getting their proverbial sh*t together have amounted to nothing.

Volkswagen announced this morning that Bentley will become an Audi brand. It will relinquish control of the brand and pass it to Audi who control many of the other Volkswagen luxury brands. But to me, that seems like a massive mistake. Audi and Bentley have the potential to compete so why the hell would you move the two brands closer together.

Annoyingly still, the reason they did it was so that the two brands could share technology. That means electrification and autonomous driving capabilities. But Audi already does that with Porsche? So by adding Bentley in the mix as well, you're going to get yet another E-tron/Taycan Frankenstein. And so I sit here with my head in my hands asking why.

Bentley isn't even doing that bloody bad. Their cars are probably the most unique of the Volkswagen stable of brands and they're actually of decent quality as well.

Bentley isn't even doing that bloody bad. Their cars are probably the most unique of the Volkswagen stable of brands and they're actually of decent quality as well. The DriveTribe creators from Australia have all agreed in fact that the Flying Spur is absolutely gorgeous and indefinitely rates in among the top cars on earth. So why the hell does Volkswagen now want to change that?

I mean I don't need to ask the question because the answer is obvious. It's for short term profitability and that fact alone frustrates me so bloody much. The reason it frustrates me is that long term it actually puts the brand in a worse position. If you undercut the Bentley product and start nailing German parts to it in an effort to bring costs of the cars down? You're going to find that Bentley buyers are going to end up buying the cheaper German counterparts or much worse change brands altogether.

It also indicates something far scarier for Bentley lovers worldwide. It could indicate that Volkswagen is gearing up to sell Bentley, and not in a good way. Volkswagen could be winding down design and manufacturing operations, switching them to Germany, in order to stop intellectual property being produced by Bentley themselves. The Bentley name holds a great deal of value with or without the tech behind it and my feeling is that Volkswagen doesn't want to give away or pay for someone else's trade secrets.

What that means long term though is that when Volkswagen do decide to ditch the Brit, it won't be until years after until the Bentley is anywhere near what it is today. Even if an established manufacturer buys them they still need to convert their own engines to work in a Bentley. It also opens an opportunity for the Chinese to buy the brand as they have done with multiple other renowned brands such as Volvo and MG.

So what is the answer for Volkswagen? It's quite simple actually. It's so simple that I explained it in that one sentence. Simplification.

So what is the answer for Volkswagen? It's quite simple actually. It's so simple that I explained it in that one sentence. Simplification. Volkswagen needs to go through SKODA, SEAT, Volkswagen, Audi, Porsche, Bentley, Lamborghini and Bugatti with a massive broom and come back to the core values of each brand to figure out which cars they should be producing. SEAT, for example, is known for being a cute fast car of the Mediterranean, the core Volkswagen brand is classically an ultra-practical vehicle with creature comforts, SKODA is the sporty and adventurous brand and Audi is mid-range luxury.

How do you fix that from the point of view of cars? Well some of them need to go. The T-Cross and Trock for example were bad ideas from the start considering that SKODA already had other products on the market. The Kodiaq for SKODA is pointless both in price and size as is the Fabia when considering SKODA has SEAT to compete within that area. The Audi Q5 is a silly car today when you consider that it's built-in Mexico and the Q3 should be a Sportback model only. The A1 can get the flick as can many of the mid-range A models. Porsche should only produce sports cars (none of this Boxster, Macan or Cayenne business), Lamborghini should only produce performance cars, Bentley should only be ultra-lux GT cars and Bugatti should be one-off track limited vehicles.

Suddenly if you do all that the Volkswagen group doesn't look all that big and the consumer finds it easy to make a choice about which Volkswagen they should buy. It also means that Volkswagen can spend more research and development budget on individual vehicles making those vehicles of a much higher quality and it allows them to focus on aftersales service (a point that overseas has been a sore one for some time).

For the short term though that's not happening. For the short term, Volkswagen is presuming Bentley's move will be the end to all of their problems. To be honest? I doubt even that will happen. But at the same time, I hope that Volkswagen doesn't tank the Bentley brand for profitability, because that'd be a crying shame and somewhat ironic. A German giant crushing the small-time and small volume British luxury car manufacturer. Wouldn't it be great if the ending of this story was something like the German giant empowers the small-time and small volume British luxury carmaker to become everything it should be? I suppose we seldom get a happy ending to any story in today's world.

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Comments (31)

  • Marcus - thank your for putting up the posts you do. You are the only one posting this type of analysis. I enjoy seeing and learning about everything automotive. Money is a facet of the industry. More importantly is the understanding of this factor and the many pieces of the machine. Great reads. I like where your head is. Keep up the good work.

      7 months ago
  • Various VAG group cars have competed against each other for decades now and in years gone by a Skoda would never have got the latest VW tech and materials. Since that’s all changed and all brands offer the same tech and quality (much narrower distinction) that’s where the problem has arisen.

    Whilst it’s a good idea to share components for economies of scale, styling has become the main differentiator, there are other differences but not enough to clearly justify one over the other.

    What your left with is people gravitating to the cheaper brands (specifically Skoda) as they offer everything that VW and Audi do resulting in the internal competition. Each brand has halo cars but if you want a middle of the road car then you’d go for the cheapest which is the right decision for the consumer.

    Unless VW rationalise and offer clarity, this will continue to be a problem and more so with incoming EV tech as they’ll all be as fast as each other and we’re back to the same problem, consumers would buy the cheaper one.... anyone for a Skoda version of an ID3 at £3k less?

    Need to sell a max of two models in each segment across brands, one cheap and the other premium. That level of culling would reduce complexity which is what VAG really need.

      7 months ago
    • I couldn’t have put it any better.

        7 months ago
  • I generally agree with your conclusion, with one general exception and one specific exception.

    SUVs sell. As much as I am ambivalent toward them, the purists alone are probably not enough to pay the bills at Porsche and Lamborghini. I’m very happy for my favorite brands to remain healthy by selling slightly off-mission products.

    Porsche’s Boxster/Cayman platform is their most pure sportscar offering. The 911 is in the luxury GT and supercar segments. Porsche’s focus should not be more narrow than these three categories.

      7 months ago
    • You are right about Porsche Boxster/Cayman and it should have done even better, but IMS scandal tainted Porsche reputation. If Bat is any indicator Boxster/Cayman and even water-cooled 911 (with exception of GTS and Weissach) are...

      Read more
        7 months ago
    • Thanks for the great feedback guys. In industry, you consider not just the current trend but you look to the future as well. COVID19 change a lot of things and it's starting to look like SUV popularity is one of them. The trends we're seeing in...

      Read more
        7 months ago
  • Perhaps this is a similar problem to what GM experienced not too long ago, and perhaps still is.

    When GM drifted away from the original strategic design, they started going downhill and competing against themselves for short-term profit enjoyed by the corporates leading the individual brands.

    The strategic design was simple, give every brand a price bracket to work with, and make sure it stays there.

    You could identify neighbourhoods just by the cars outside. The working class had a Chevrolet, and the manager had a Cadillac.

    Totally agree, VW needs to simplify.

      7 months ago
    • As I read this article I thought of GM in the 80's and 90's. So many brands all competing with each other. Pontiac Sunbird vs Chevy Cavalier, Camaro vs Trans Am, Jimmy vs Blazer, and on and on. Same shit different pile.

        7 months ago
    • Which is a shame because GM's brands used to have enough differentiators to matter, and had they leaned into those differences (Pontiac-Holden as a sports-performance brand, Cadillac as a full Benz fighter, Buick as a mid-luxe Audi/BMW...

      Read more
        7 months ago
  • “On gods green earth”... 🤣🤣 they made sure it was not that green or wouldn’t get any greener a few years back 🤣🤣

      7 months ago