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Business News/ Companies / Volkswagen said to plan merging components units, weigh asset sale
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Volkswagen said to plan merging components units, weigh asset sale

Volkswagen plans to merge the components units of each brand into one new entity that would include about 70,000 employees

A man walks past a screen displaying a logo of Volkswagen. Photo: Anindito Mukherjee/ReutersPremium
A man walks past a screen displaying a logo of Volkswagen. Photo: Anindito Mukherjee/Reuters

London/Frankfurt/New York: Volkswagen AG plans to bundle the components businesses of its different brands to save costs and will review disposing of peripheral assets, according to people familiar with the matter, as part of a sweeping strategy review by chief executive officer (CEO) Matthias Mueller as he seeks to navigate Europe’s largest carmaker out of the emissions scandal.

VW’s senior management presented a plan to the supervisory board on Tuesday and may announce the steps as part of a presentation on Thursday, said the people, who asked not to be identified because talks are private. Volkswagen officials declined to comment.

The steps make “perfect sense," said Arndt Ellinghorst, a London-based analyst with Evercore ISI. “The financial market still doesn’t seem to realize that there is more going on at VW than some people might think." VW’s American depositary receipts gained 1.9% on Tuesday to close at $29.47 after spending most of the New York trading day in negative territory.

The diesel scandal that has rocked the manufacturer since September, when VW admitted to installing software that falsifies emissions tests, has forced the company to cut costs as it faces billions in fines and repairs from the millions of cars globally that were rigged. Mueller’s strategy update is aimed at moving the company beyond the scandal, and he’s already acknowledged that VW is too unwieldy and too static, and needs to catch up on future technologies such as car-sharing and electric mobility.

The carmaker plans to merge the components units of each brand into one new entity that would include about 70,000 employees at more than two dozen locations worldwide, allowing it to save costs and boost efficiency from a single management and unified strategy, said the people.

The reorganization resembles the advent of Delphi by pre-bankruptcy General Motors Corp. and of Visteon at Ford Motor Co. Those US auto-parts companies were later spun off. Currently, there are no plans to spin off or sell the new VW components unit, one of the people said.

VW was a pioneer more than a decade ago at pooling manufacturing resources by sharing platforms for similar cars from its different ranges, which include the namesake brand, as well as the luxury Audi marque, Skoda Auto and Seat of Spain.

Portfolio review

VW is also likely to announce plans for a portfolio review, which could lead to the sale of non-core assets, said the people. While no decisions have been made on which assets are expendable, ones that could end on that list include motorcycle brand Ducati, the MAN Diesel & Turbo business and propulsion specialist MAN Renk, said the people. An initial public offering of the trucking business could also be considered down the road, one of the people said.

“Commercial-vehicle demand is on the rise in Europe so their timing on a sale of the truck operations MAN and Scania might be well timed," Richard Hilgert, a Chicago-based analyst with Morningstar, said in an e-mail. “Ducati is a well-revered brand and could be worth a pretty penny."

The expansion of VW into the broad range of product lines and brands it juggles today under one roof was the brainchild of Ferdinand Piech, the long-time CEO and later chairman of VW. Piech left last year in a management dust-up with Martin Winterkorn, Mueller’s predecessor, who followed Piech out of the door shortly after the emissions scandal broke into the open. Mueller previously ran the Porsche sports-car subsidiary. Bloomberg

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Published: 15 Jun 2016, 03:49 PM IST
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