VW investing $120B in new models, plants over five years

WOLFSBURG, Germany—The Volkswagen Group has announced plans to invest more than $120-billion over the next five years into increasingly efficient vehicles and technologies and environmentally-friendly auto production.

A day after announcing plans to adapt its global assembly facilities to build conventional and alternative-powered vehicles back-to-back, the German automaker said it will make the hefty investment between 2014 and 2018 to further boost the fuel efficiency of its lineup and continue toward more sustainable assembly.

“We will continue to invest strongly in our innovation and technology leadership, despite the uncertain economic environment,” board chair Dr. Martin Winterkorn said in a statement.

“This will once again significantly boost the Group’s competitiveness and safeguard its future. I am convinced that this will give us extra power on our way to the top.”

Of the total investment in the coming years, the automaker said more than $90-billion will be injected into its property, plant and equipment on the automotive side—about $71-million less annually than what was approved in 2012 for the period from 2013 to 2015.

“In times like these, our disciplined cost and investment management will remain a cornerstone of our activities,” said Winterkorn.

Volkswagen said the lower amount of investment is due to “the postponement of construction projects and capacity optimization,” though it didn’t provide details.

Investments in products and technologies will not be impacted by the economic decline, according to the automaker, and the ratio of investments in property, plant and equipment to sales revenue will remain at between six and seven per cent from 2014 to 2018.

Almost 60 per cent of that investment will be made in Germany.

“The amount being invested in Germany is a strong testament to the fact that our home locations will continue to play a key role in the globally positioned Group going forward,” said Winterkorn. “At Volkswagen, we are clearly committed to Germany as a manufacturing and development location.

“At the same time, we are also stepping up our investments in the markets outside Europe so as to further increase our global presence and capability.”

The automaker said $58.8-billion, or roughly 65 per cent of the total $90-billion earmarked for property and capital improvements, will be aimed at modernizing and extending the product range for the host of brands in the Volkswagen Group.

The main focus, according to VW, will be on new vehicles and successor models in almost all vehicle classes.

This is largely due to emissions reduction targets stepping up to Euro 6, which necessitates “completely revamping the group’s range of vehicles and engines.”

In particular, the group will continue to press ahead with the development of hybrid and electric motors.

The remaining $31.7-billion of the property and capital improvement budget will go toward cross-product investments that include spending to expand capacity.

Investments outside production are mainly planned for the areas of development, quality assurance, sales, genuine parts supply and information technology.

“Volkswagen’s focus on future viability and sustainability also extends to its investments—and this applies to both products and production,” said Bernd Osterloh, chair of the automaker’s works council. “This is good for our locations and good for jobs.”