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.
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
Vanagons. Without a doubt.
I spent part of the summer of 2001ish out west sleeping in a diesel vanagon caught modest mouse at a festival on the gorge in Washington state when they were at their weirdest.
The clatter and smell of partially burnt diesel still reminds me of waking up parked on blm land out there.
Scirocco, 1st generation, North America. I had two. First one lost to a hit and run. Liked it so much that I got another one. Both were bought used but great shape with low miles. Never liked the looks of the 2nd generation though.
“For German Carmakers To Survive They Have To Become Less German” Incorrect- they’re in their current predicament because they’ve been focusing on the Chinese market at the expense of everywhere else. Instead of continuing to add more touchscreens to their touchscreens, they need to go back to what they’re good at.
I dont know, German cars should become More German if you ask me. Ford would do this with their great european cars, ‘americanize’ them beyond just meeting the slightly different safety rules. Thereby messing them up. Good solid Eighties Mercedes interiors, Teutonic, versus way-too-busy current Merc interiors, ugh. See also BMW and VW while you’re at it.
Boring answer but correct: GTI Mark 7/7.5.
Aston Martin’s customers might be in Valhalla AKA the Hall of the Slain:, AKA the service department, ruled by Odin the service writer, where half the warriors killed in combat go to feast and fight daily, with wounds healing each night, to prepare for the final battle against the giants. Presumably the other half are waiting for parts.
Odin has been pissed ever since he got fired at Volvo.
Well unless the EU or Germany steps in and subsidizes them or puts tariffs on Chinese vehucles they can kiss their domestic carmakers goodbye.
They do both those things already I believe.
not really
Yup. My eyes do vertical 360s whenever free trade schmucks start waxing about Chinese products. As the Autopian has been mentioning a bunch of times this week, the auto industry in China is subsidized to an absolutely ridiculous level, it has no resemblance to free trade at all. So either Europe stops fighting with both arms tied behind its back and subsidizes their own manufacturers, or even better pulls a US and just blocks Chinese auto imports (on very real national security grounds).
Or they can just let one of their economic crown jewels wither on the vine, that would be the very Eurocrat thing to do.
That would require a backbone and as everyone knows Europe no longer has one.
Chinese manufacturers should be tariffed to hell,but I suspect Europe won’t do that because China also produces all our crap as well as the stuff European car manufacturers use to actually make cars. Talk about putting all your eggs in one basket and eating it.
It wouldn’t surprise me if they had influence with the politicians in Europe either. Either with threats or incentives. We already know that China retaliated against countries that voted to limit their imports.
I suspect all they have to do is mumble «rare earth minerals» over the EU parliament’s shoulder and suddenly it’s no big deal after all..
I bought my ’83 VW Scirocco in 1986 for $6150, from a classified ad in the paper. I was 16. Thanks to my parents for loaning me the extra $4000.
What I realized almost immediately was that this car was very different from my friends’ cars. Mustangs, giant GM station wagon, Chevy Chevette (ugh), a few Hondas. It was better built. The doors made the lovely solid “thunk” that German cars used to make. The interior was spartan but sleek. All black. Leather seats! A rare Scirocco option.
It was built, I believe, in Wolfsburg. I always imagined that it was assembled by tall, fastidious German men who took pride in their work. The car had its quirks but was clearly of a quality unmatched by American cars of its time. I felt similarly about my ’05 BMW E46 coupe.
That’s what’s missing from German cars now. They don’t feel special.
I associated German cars with a sense that anything that wasn’t functional was left off. Now they have features.
Maybe go back to the low feature model, and what is there is built to last forever.
Favourite VW? That would be the VW Taro! But seriously I still have a big grin driving my Vanagon with a Trakka interior – An Australianised Westfalia that looks like this.
Making them less German is lofty. I would settle for less stupid because there’s been plenty of that.
Someone said this too: they’re just not that vastly better anymore. They have no edge in prices, innovation, features etc. they pretty much have been caught up to, and surpassed in many ways. I mean the 80’s Quattro was a marvel of engineering. Where is today’s equivalent?
Scout seems like a well-planned and possibly well executed idea but there’s plenty of time left to snatch defeat from the jaws of victory. Let’s hope not.
The beleaguered brands having trouble adapting to today’s market should all band together and create an open source platform for an EV. They can combine their economies of scale for the most expensive bits: platform and battery, and then do their own thing with the rest. It could see anyone who wants to join it in, but I think Honda, Nissan and Volkswagen come to mind first.
I think the real issue with zee Germans is they’re not really all that disproportionately great anymore. They’re good, but not necessarily “better” than American or Asian cars. Sure, Porsches rule a racetrack… but is an average consumer, or even an above-average consumer going to be more impressed by a Porsche Cayenne than a Lexus RX or even a Nissan Murano? Especially if they didn’t know it was a Porsche, they would NOT be. In fact, they’d almost certainly go with the Lexus if all the badges were covered up and nobody knew which was which.
I’m continuously let down by high end rental cars I have. The one notable exception being the “cheap” MB CLA 250 4MATIC hybrid I had recently, which was admittedly fun to flog non-stop… The transmission, though, felt like it was made out of glass. Broken glass.
German cars used to be rather sensible, really. Take a look at a Mercedes-Benz 190E. I saw someone refer to it recently as having “a sense of occasion” to driving it. Everything was resolutely thought out. Fast forward to today and Mercedes-Benz is trying to push ugly blob EV cars that have more screen space than a desktop. Who asked for that? Nobody!
It’s easy to marvel at old European cars for being so much closer to what cars are like today in layout than American or Japanese contemporaries, but they lost their way a long time ago. Another aspect is that the dealer networks haven’t come around to this decade or century yet, so they still trade on being pretentious above all else. Honestly, most people would rather NOT pull up to Trader Joe’s in a BMW or Mercedes-Benz because of the perceived pretentiousness. Even Cadillac is less pretentious, though more ostentatious.
Eh, a Lexus and a Nissan will never drive as nice as a Porsche. If you were able to drive the vehicles, I think most would feel the Cayenne drives better. Not saying the prices aren’t out of hand, but the driving experience is much preferred. (Side note, I have 2 modern Porsches currently). Honestly, the most mainstream brand that comes closest to driving fun is Mazda, and they look good also.
Favourite VW?
Mk 2 Scirocco
I had one with a 90bhp 1.8 carb engine, but it only weighed 850kg so was a blast on twisty British B-roads in the Lake District.
I still miss that car.
Favorite VW: 1985 GTI (A2/Mk2), mostly because I owned one circa 1990-92. I added Neuspeed spings, Boge stuts, and Leistritz exhaust – a fun car.
I thought about what kind of VW car really stuck in my mind and nothing does. I find the brand to be utterly forgettable. Phaeton maybe? Everyone loved the Beetle and I really hate that car. I find nothing about it redeemable but I’m in the minority there. I saw the ID.Buzz in person and I thought that thing looked really great though.
I love me some GTI. Specifically I have a soft spot for the mk4 GTI (owned one) and will always lust for a mk4 R32. The GTI in all its forms has always been so practical and fun all at the same time. It’s so close to a perfect compromise it hardly feels like a compromise at all.
Yep. The mk4 GTI and R32 have just the right look about them. I had a mk4 GTI VR6. I loved/hated it as one does with VWs of that generation!
My favorite VW is the Bus, then the Beetle just because they are SO iconic. I did love my Rabbit GTI and 84 Jetta when I had them. They were a blast to drive!
1st gen Jetta coupe – as 3 box as you can get