For German Carmakers To Survive They Have To Become Less German

Quarterly financial reports and boardroom gossip are starting to arrive at The Morning Dump HQ from Europe, and someone better call Isaac Brock, because I’ve got good news for people who love bad news. Specifically, profits are dwindling and problems are multiplying.

Volkswagen hasn’t reported yet, but a three-bylined behind-the-scenes story says Volkswagen Group’s main leadership realize that the concept of building a bunch of cars in Germany and selling them other places doesn’t work anymore. To some extent, Mercedes already came to that conclusion, but headwinds in China and the United States are taking a bite out of profits. At least Mercedes is making money. For all his efforts, Lawrence Stroll has yet to make Aston Martin profitable.

Can you make a lot of money by designing a LEGO model of a car? I sort of don’t think so, but maybe this guy can get his sweet Renault built.

Volkswagen, As A Concept, Doesn’t Work Anymore

You know it’s a bad day when I use this guy’s picture. Other than Carlos Tavares (not pictured), I think Fritz here is the most commonly used image here in The Morning Dump. He’s just got that perfect this bullshit again? look on his face.

Volkswagen is realizing, slowly, that the historic concept of Volkswagen doesn’t work. Here’s a big story from Automotive News that shows the company coming to that difficult conclusion:

Volkswagen Group’s top leadership concluded that the automaker’s long-standing business model is no longer sustainable, setting the stage for deeper restructuring, capacity reductions and a sharper shift toward local production in key markets.

VW Group’s management and supervisory boards reached the conclusion during a meeting on April 27, according to people familiar with the matter. While no formal decisions were taken, the conclusion underscores mounting pressure on the group to adapt to a more fragmented global trade environment and faster technological change.

For decades, VW relied on developing vehicles in Germany and exporting them or producing localized versions abroad. That model is increasingly strained by U.S. tariffs, EU-China trade tensions and the capital-intensive shift to electric vehicles, which requires new platforms and battery production.

That is a tough pill to swallow, especially for a company that’s literally owned in part by the German state of Lower Saxony and represents, in a larger sense, Germany’s once-heralded production might. The math is the math, though, and Volkswagen recently had enough capacity to build 12 million cars a year. It expects to need about 9 million cars worth of capacity.

A few years ago, Volkswagen could have probably kept more of its production in Germany, but tariffs and other considerations makes that less practical. One of the reasons that Scout is so important for Volkswagen is that Scout will be built in the United States, which is a place where Volkswagen’s various brands sell a lot of cars, but the company builds relatively few of them. That just doesn’t work anymore.

This is also tough for Porsche, though Porsche is a high margin brand that can take a little bit of a hit. What’s Audi going to do in all of this?

The strange part about all of this is that, growing up, you bought a German car because it was built in Germany. The being-built-in-Germany part implied a certain quality. It was the Ultimate Driving Machine or Vorsprung durch Technik. Even Volkswagen knew that was not entirely sustainable, and opened plants in China, South America, the United States, and other European countries. A good chunk of the VWs you grew up with were probably made in Mexico.

Understandably, though, Volkswagen kept an awful lot of plants in Germany itself: Wolfsburg, Zwickau, Hanoever, Dresden, Osnabrück, Emden, Kassel, and other places. The company seems to have decided, at some level, that this can’t continue, even if it’s just a matter of building something else (drones) in those plants.

Mercedes Sees Profits Drop, But It’s Not As Bad As It Could Have Been

Mercedes-Benz is an automaker with a large number of facilities in Europe, as well, but it’s less German-centric in its production, having embraced places as far flung as Alabama and Fuzhou.

Still, China is a rough place to sell cars now, and Mercedes doesn’t build everything it sells in the American market within the borders of the United States. As Reuters reports, a better-than-expected Q1 is still down from last year:

The automaker reported earnings before interest and tax (EBIT) of €1.9 billion euros ($2.22 billion), down 17 percent, but higher than the average analyst estimate of €1.6 billion.

Steep tariffs, China woes and a rocky transition to electric vehicles have weighed heavily on German automakers such as Mercedes, whose CEO Ola Kallenius has turned to sweeping job and cost cuts to stem losses while rolling out a cascade of new models.

The Stuttgart-based company on April 29 reported first-quarter revenue of €31.6 billion, missing analyst estimates for €31.8 billion.

Selling cars is hard, and making money selling cars is harder, but being in the black is way better than being in the red.

Aston Martin Goes Further In Debt

Aston Martin’s customers might be in Valhalla, but its investors might feel a little differently after the company posted yet another loss.

Per Bloomberg:

Aston Martin Lagonda Global Holdings Plc reported another quarterly loss as billionaire Lawrence Stroll’s consortium put up a further £50 million ($68 million) in an attempt to ease the pressure on the embattled carmaker.

The British company’s pretax loss narrowed slightly to £65.5 million in the first quarter from a year earlier, it said Wednesday. Net debt swelled to £1.46 billion, underscoring the challenge it faces.

Shares of Aston Martin rose 6.2% in early trading in London, buoyed by news of the £50 million facility with certain members of Stroll’s consortium. The stock, which has lost most of its value since listing in 2018, is down by more than a third this year.

A turnaround doesn’t happen overnight. Here’s a crazy idea: Scout is looking for a partner, right? What if Scout built an Aston Martin-based Defender-like competitor in South Carolina?

Check Out This Cool Lego Renault

Here’s a fun story to wrap up the morning. British LEGO fan and designer Dave Collins, aka devonbricks, has made his own brick version of the Renault 5 Turbo 3E and Renault, rather than getting cranky and throwing an IP fit, is actually supporting Dave in his quest to get the thing turned into a real LEGO kit.

Now submitted to the LEGO® Ideas platform, it needs 10,000 supporters to progress to the next stage, where it could be selected for production as an official LEGO® set. Renault is urging fans of the brand, the original Renault 5, the new Renault 5 and LEGO® itself to get behind the project and help make it happen.

At its heart is a blend of nostalgia and reinvention that defines the Renault 5 story. The original Turbo models of the 1980s left a lasting impression with their wild looks and attitude, while the all-electric Renault 5 Turbo 3E reimagines that energy for a new generation. With just 1,980 examples of the real £140,000 Renault 5 Turbo 3E set to be built, the LEGO® version offers the chance for more people to own a piece of that story.

You can go to the LEGO platform page here and support his idea.

What I’m Listening To While Writing TMD

I was not aware that there was a music video for Wolf Parade’s “I’ll Believe In Anything,” but after watching the fifth episode of that show Alanis can’t stop talking about, I don’t think it will ever really need a video again. Also, this song was produced by Isaac Brock! How’s that for full circle?

The Big Question

What’s your favorite VW of all time?

Top photo: Volkswagen