vw quality and profits - kal
By Chad Thomas
Nov. 19 (Bloomberg) -- Martin Winterkorn, Volkswagen AG's designated chief executive, aims to beat the carmaker's 2008 profit target as the company introduces new models and cuts production costs.
``I am certain that we will reach the goal of 5.1 billion euros ($6.5 billion) in pretax profit in 2008 and will do
everything possible to surpass this expectation,'' Winterkorn said in an interview yesterday at the Beijing auto show, his first public appearance since the supervisory board of Europe's largest carmaker approved his selection Nov 17.
Winterkorn has pushed Audi AG to record sales and profit and challenged market leaders DaimlerChrysler AG's Mercedes-Benz and Bayerische Motoren Werke AG during his nearly five-year tenure as CEO at Volkswagen's luxury division. This month, Volkswagen rewarded him, unexpectedly tapping him to replace Bernd Pischetsrieder as the group's chief executive Jan. 1.
``The image of Audi has been changed from that of `the poor man's Mercedes' to being right in the mix with BMW and Mercedes,'' Stephen Pope, head of equity research at Cantor Fitzgerald in London with a ``buy'' rating on the shares. ``Winterkorn has the ability to take his proven magic from the luxury end of the market and cast a similar spell over the VW mass brand and over the group as a whole.''
Pischetsrieder last year set a goal of boosting pretax profit to 5.1 billion euros for the Volkswagen Group in 2008 from the 1.1 billion-euro figure posted in 2004. He cut labor and production costs and introduced new models to spur sales.

Audi's Growth

Audi has posted continual sales and profit gains since Winterkorn took control in March 2002. Sales rose 18 percent to 26.6 billion euros last year from 22.6 billion euros in 2002, while net income during the period climbed 10 percent to 824 million euros.
The gains have helped offset losses at Volkswagen's namesake brand. Audi's 2005 net income accounted for more than two-thirds of the group profit of 1.12 billion euros. This year, Audi is forecasting record sales and profit and Winterkorn has a goal of selling more than 1 million vehicles in 2008.
Winterkorn attributes his success to what he calls an obsession with quality, dating to when he joined Audi in 1981 in the quality control division. He took eventually ran the quality control division for the entire group. In July 2000, he joined Volkswagen's management board as head of research and development before returning to run Audi in March 2002.

Quality Meetings

As CEO, Winterkorn instituted a monthly meeting with his technicians and engineers in a room to look at problem parts and figure out what's wrong. Standing around a table with the parts laid out in front of them, they search for a solution. Until they find one, no one is allowed to leave.
Winterkorn's biggest challenges as group CEO, analysts say, will be to adapt his quality and technology expertise to further reducing production costs at the Volkswagen brand and return the carmaker to profit in the U.S., the world's largest market.
``He's definitely a fanatic on quality and technology,'' said Patrick Juchemich, an analyst with Sal Oppenheim in
Frankfurt who rates the company ``neutral''. ``But being a group CEO requires a different approach. One's communication skills are much more in focus.''

U.S. Challenge

Winterkorn will need to finish the restructuring at the Volkswagen brand that Pischetsrieder began. The carmaker is eliminating 20,000 German jobs and shifting to a longer workweek after reaching agreement in September with unions. Shoring up quality is critical to turning around Volkswagen's U.S. operations, unprofitable since 2002.
``Volkswagen has a problem with U.S. consumers in their 30s who had a Volkswagen in their 20s and will never go back,'' said Rebecca Lindland, a senior analyst at Global Insight Inc. in Lexington, Massachusetts. ``All they remember is being broken down in college with their Volkswagens.''
At Audi, Winterkorn has also faced unprofitable U.S. operations and image problems. U.S. sales plummeted 85 percent from 1985 to 1993, after the CBS television news program 60 Minutes alleged that Audis were prone to sudden, unexpected acceleration. U.S. courts later determined drivers were at fault.
Winterkorn's first major decision after becoming Audi CEO was to develop a sport-utility vehicle tailored to the U.S. market. The SUV, named the Q7, features extra-large cup holders, a trunk that lets golf clubs slide in sideways, and seats designed to snap forward without tearing long fingernails because women are key customers in the U.S. SUV market, Winterkorn has said.
Winterkorn's efforts have paid off. In October, the carmaker said it expects record U.S. sales this year and Audi
will likely break-even in the U.S. this year for the first time since 2001.

Piech's Support

Winterkorn's rise to the top is in many ways thanks to two key constituencies: Volkswagen Supervisory Board Chairman Ferdinand Piech and labor leaders.
Winterkorn and Piech have worked closely with one another since the 1980s, when Piech was running Audi. Today that longstanding relationship is evident at Audi's public events, where Piech is a frequent guest and Winterkorn often credits his mentor for Audi's success.
Piech's support is not only critical because he runs the supervisory board but also because Porsche AG, which Piech's family controls, is Volkswagen's largest shareholder. Porsche this week said it had increased its stake to 27.4 percent and may go as high as 29.9 percent.
Winterkorn needs the labor leaders backing because they control half the seats on the supervisory board, which is similar to an American board of directors. Earlier this month, Volkswagen's works council praised his management style.
``Mr. Winterkorn is a top manager who can work as part of a team,'' the works council said in a statement. ``If he was the coach of a football team, we would have to certify that, as trainer, he has motivated his team to perform at a high level and has led them to the top of the rankings.''
 

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