Volkswagen leads at half time

Volkswagen Group noses ahead in the first half of 2015, but is it all roses?

Volkswagen Group has now overtaken Toyota as the largest automaker in the world for the first half of 2015. Volkswagen sold 5.04 million vehicles in the first six months of the year, nudging Toyota’s 5.02 million. General Motors, once the world’s biggest automaker, is now firmly sitting at No. 3 slot. It has not yet released its official first-half figures.

While the title is basically not much more than bragging rights and a symbolic victory of sorts, it shows how different global strategies are working in an industry that has been changing at lightspeed pace over the last last few years. Martin Winterkorn, Volkswagen CEO made no secret about wanting to be No. 1 but this was only supposed to happen by 2018. Whether the company keeps pole position will depend on how they navigate the next six months.

Volkswagen’s elevation to the top spot is not terribly crushing news for Toyota, because the Japanese car maker remains highly profitable and retains strong global market share. Toyota’s operating profit margin for its 2015 fiscal year, which ended March 31, was 10.1%, making them the envy of the industry. Volkswagen’s global operating profit margin for 2014 was 6.3%.

Despite Volkswagen’s global sales gains, it has struggled in the U.S. Industry experts say the brand lacks enough selection and has lagged on quality in the world’s most lucrative car market. U.S. sales of the Volkswagen brand fell 10% in 2014, despite a 5.9% gain in overall industry sales. For the first six months of 2015, Volkswagen brand sales fell 2.6%, compared to a 4.4% increase for the overall industry. By contrast, U.S. sales for the Toyota brand rose 5.8% in 2014 and 5.2% for the first half of 2015.

In the 2015 J.D. Power and Associates Initial Quality Study, which examines new vehicles, Volkswagen’s namesake brand ranked 24th out of 33 brands sold in the U.S. The Toyota brand was 10th.

Auto China 2014

The Volkswagen ascension does not come as a big surprise as the company has been very aggressive across the globe. This is very evident when you think about the Malaysian market and their sales performance here. The company went from zero to hero before you could say DSG as the streets were littered with Golfs and Polos.

However, there is a cautionary tale here as it would seem that in their zeal to capture market share, they did not fully think out their capacity to manage large volumes. This led to a slew of issues around after sales and service quality, exacerbated by product issues. And while a market like Malaysia barely registers a blip in the global radar, it is important for manufacturers to understand where the sweet spot sits between the sometimes diametrically opposed needs of volume and brand.

To be sure, though, the U.S. market and the Malaysian issues reflect one of Volkswagen’s few significant slip-ups. The company has claimed the top spot in China, the world’s largest vehicle market, and remains dominant in Europe.

The German automaker’s global sales for the first half of 2015 fell 0.5% compared to the previous year, as tough economic conditions took a toll in foreign markets such as South America and Russia. The company’s China sales fell 3.9% through June. Toyota’s global sales fell 1.5% for the same period.

So it is game on now. Let’s see what happens in six months time.