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
Not really a huge VW fan, but a Caddy or a notchback are probably my favs.
Am I the only one that feels insane reading the Automotive News clip asserting that VW needs to be “less German” to succeed? The bulk of their US volume sellers come straight from Chattanooga, and the Atlas was designed just for us. It’s not the GTI production in the EU that’s dragging them down.
The original sin in my book was the NMS Passat. After that, VWUSA resigned themselves to being a half-rate Toyota.
Anyway, favorite VW is the dorky MK 3.5 Cabriolet, only because that was my first car in high school. No parent was ever concerned when I dropped their daughter off past curfew in that thing.
Stop and look at the immediate direction you took with what you wrote. You have come to the discussion from clearly a US-centric viewpoint. The article very much states this is a global problem for VW.
Quite a loaded reply. VW itself has disclosed that its target markets of growth have been the US and China for quite some time. The article goes on to directly state that the “model is increasingly strained by U.S. tariffs, EU-China trade tensions”. VW may have several obstacles to success but the one posited here is very much described as related to its performance in the US/China, where the bulk of production already occurs locally. The German manufacturing element of the equation has been largely absent for a while. If you want to fault anyone for a “US-centric viewpoint,” blame Automotive News.
The EU is making the EU less of a consideration. The economic output in Germany itself is in decline – there’s even a Wiki article about it here. It’s the same problem across Europe – if your economy is in decline, you have to sell cars where there is both money and a growing population (particularly as cars last longer). That’s US and China.
This is a global problem for VW, but also sort of a global problem for everybody who manufactures in Germany. It’s not US-centric to state that VW isn’t approaching the US properly, when the US forms the foundation of any future VW growth prospects.
Favorite VW? A tossup between the OG VW Beetle, the hardtop Karmann Ghia, and the XL1. It’s too hard to choose.
I’d love a car that combined the best traits of each and ran a TDI engine. Take the VW Beetle’s simplicity and ease of repair plus having a manual transmission, the Ghia’s styling and seating layout(2 door 2+2), and the XL1’s light weight and aero drag reduction, and put it in a mid-engine, rear-drive package set up as a plug-in hybrid with at least a 10 kWh battery. No touch screens, no nagging devices, just a mostly-analogue, highly-efficient sports car that is inexpensive to purchase, looks pretty, goes fast, is practical to daily, is easy to work on, and costs almost nothing to operate thanks to a combination of easy reparability and high fuel economy. Keep it Beetle-sized and under 2,500 lbs with at least 400 peak horsepower on board, and a CdA value equal to or lower than the XL1.
Casey Putsch’s Omega Sports Car is about as close as anyone will probably ever get, but it’s not a plug-in hybrid and only seats 2. It does 0-60 mph ~4 seconds and gets over 100 mpg though, and is quite pretty.
I have owned at least two cars from every brand of cars I’ve owned (Chevrolet x2, Volvo x2, Saab x2, BMW x8), including two Volkswagens, a B6 Passat 3.6 and a Mk7 Alltrack S 6MT. The Alltrack was a nice, do-anything car with a little bit of fun baked in, but, man, that Passat was special.
It was fast, smooth, the VR6 sounded great, handled way better than a FWD car with that much motor had a right to, luxurious—Package 2 Sport got you a pair of front buckets that looked like they came out of a vintage Ferrari, covered in super soft leather. It was also flawed, overcomplicated, not easy to service, and by the time it got close to 150K we could feel the clock ticking and let it go. It was the car I bought to teach my now-husband to drive in, so there’s also a lot of personal nostalgia to it for us both.
The last time we were at a Pick-N-Pull a few weeks ago, there were a couple of B6s in the yard, and over the last couple of years I’ve definitely seen the A5/B6-era cars increasing in number in junkyards as the A4/B5s fade away. I doubt ours is still on the road, either. Pour one out.
I really like my Mk.VII Golf, it’s pretty much the platonic ideal of a do-anything gas-powered car. But, I still have a soft spot for the 1991 Jetta turbo-diesel that my parents had in the mid-90s and I ended up with later on while I was in grad school. That thing had driving character, tons of low-end torque, got ridiculous fuel economy, and was funreliable in the best way (usually only breaking in ways that were easy and instructive to fix).
Favorite VW? It’s a tie between the original Scirocco and the Rabbit Pickup.
High probability that we could be friends.
Karmann Ghia and Square back, in orange. Maybe someday…
Yes, VW needs to diversify their assembly footprint and close factories in Europe and Germany. Governments and unions will cry but unless VW is going to get direct subsidies or the workers are going to take pay cuts VW will not be competitive in global markets shipping cars from Europe
Favorite VW is Karmann Ghia hardtop in Powder Blue.
Porsche 914!
I remember driving around in my mid 60’s VW Bug with my young son in the back feeling the wind on his face.
Thanks for the memory.
Beetle would be my top Porsche.
Thanks. My top porch would be a Beatle.
My favorite VW is a toss-up between the Touareg V10 TDI we got here in the states or the third gen V8 TDI we didn’t get here. Honorable mentions to the Passat Wagon with the VR6, Beetle RSI, the MK5 R32, and the MK7 GTI I used to own. I used to love VW, but unfortunately, they haven’t made a car I’d really consider since they killed off the manual GTI/R. Even then, only having the GTI/R be worth considering in the lineup sucks. The brand is so lost for identity its insane.
VW Golf
It is the true “global car” in my mind. That being said, and VW making curious product decisions, the RAV4 & Corolla are doing a lot of heavy lifting to shifting my perception towards Toyota in the last few years.
TBQ: the Bug. Hands down. Herbie, my family’s history with them, the fact I own one, the fact I smile every time I see one, the fact even children still know what it is. And they’re just so damn cute.
The site sure manages to come up with some tough questions. It would have been easier if they had asked some less unpleasant stuff like:
-Which of your children would you like to sacrifice to the old gods?
-Which form of debilitating chronic disease would you most like to live with?
-Which medieval torture instrument is your favorite?
-Which of the plagues of Egypt would best suit your current life?
And so on.
As someone who almost certainly has no children, it would be my cat. He’ll be fine with it.
Probably something in a pain disorder. It’ll be terrible, but I think most of them are unlikely to progress in a way that makes me unable to work in my current career.
I assume you mean as the recipient, given the context here, so the rack. It seems like it would pop my back pretty well right before it makes everything so much worse.
Darkness for sure. Frogs would be alright, too.
The answer to all of these questions happens to be the 2012 Tiguan, strangely enough.
Beetle
Scirocco
Bus
Golf
I’ll play:
-Which of your children would you like to sacrifice to the old gods?
My daughter. Because I feel like she would be leading the New God’s within a week.
-Which form of debilitating chronic disease would you most like to live with?
As Wilford Brimley would say, “DIABEETUS!”
-Which medieval torture instrument is your favorite?
The Iron Maiden. “Number of the Beast” rocks.
-Which of the plagues of Egypt would best suit your current life?
The Nile turning to blood. I live in Canada, so I wouldn’t have to worry about it, just see it on the news.
“The Iron Maiden. “Number of the Beast” rocks.”
Obligatory:
https://m.youtube.com/watch?v=6iasuHMvymI
My dad’s ’66 baja bug he had when I was a little kid. Lots of memories doing donuts in that car.
How is Aston Martin is losing money in a K-shaped economy? They did nothing to alienate their audience. They still make cars with V12’s in them. They never took a hit from a failed attempt to release an electric car. They are legally and financially separate from their F1 effort. Are they that dependent on the James Bond franchise? Does it always take another movie to get out of the red?
I don’t believe Aston Martin has ever made money.
They showed a profit in 2017, but it’s pretty suspicious that they turned a profit, went public, then promptly stopped being profitable again. Really smells like they did some creative accounting to get that sweet investor cash.
These are the questions I always ask. It’s seemingly impossible for a luxury goods maker to not be making money these days, yet Aston Martin has managed it. If you ask around, everyone loves Aston Martin and is glad they’re around and their cars are gorgeous. Then when it comes time to buy, they go to Porsche and Ferrari. Sorry, Aston, maybe next time.
Not being able to make Aston Martin profitable during this period pretty much confirms to me that the Aston Martin F1 team will never be one of the powerhouse teams. Something is just inherently amiss over there.
I imagine the answer is ultimately lots of company expensed blackjack, hookers and blow.
Aston Martin is the automotive equivalent of the old joke:
Q.) How do you make a small fortune in farming?
A.) Start with a large fortune.
Type 2 pickup. I just think they’re neat!
My parents had a ’69 Squareback that we driven around in everywhere, often in the way back, where the fun was all about being tossed around in the corners (restraints were a concept for the future). It broke down constantly, but it’s the car I learned to drive in, and so it wins for me
My Mk6 GTI is my favorite! I love my car, it’s been rock solid reliable since I bought it as a lease return. I think that only realistic upgrade path is a Mk8, and that’s hopefully a long ways off.
Favorite VW? Probably the Type 34 Karmann Ghia, same tough as nails powertrain that built the company’s (increasingly undeserved in modern times) reputation for durability, wrapped in some of the prettiest sheet metal of the 1960s
My Favorite VW, oof hard question. My personal favorite that I owned would be my 78 rabbit I had in college.
My favorite VW from the history of VW. Hard choice between:
Syncro Camper Van
Thing
Corrado
Fox 2 door wagon
and probably a few more.
Corrado. Uncommon and gorgeous.
I don’t really get VW, or the love for them. They are Germany’s Nissan.
But I do like a Corrado. Supercharged or V6, either is fine.
My interest in VW dies around the same time most of my interest in Nissan dies. Mid 90s. But I’m a huge Pre OBD2 Nissan/Datsun fan. I own a pretty good number of 90s and older Nissan/Datsun. I’ve nearly bought a Corrado or a Karmann Ghia repeatedly, but never actually pulled the trigger.
I had a 350Z that was ok, apart from being somehow 300kg too heavy and having a dreary engine with terrible throttle response, but I’d love a Sileighty.
Maybe I just like coupes?
I have ’90 Sileighty. Still KA24, but 5 lug converted with 300zx big brake kit, and lowered. That is one of my favorite cars, period. An oem Kids Heart built SilEighty is about the only car I can think of that I would buy and NOT modify at all in any way. Then I have an uncomfortable number of mid 80s 720 trucks, a 71 510 wagon, and a 69 Roadster.
Favorite VW is easily the SP2
What’s your favorite VW of all time?
The Polo R WRC