VW Bets on SUVs, Electric Cars in Overhaul of Namesake Brand

(Bloomberg) -- Volkswagen AG's namesake brand is pivoting from damage control to competing harder against Toyota Motor Corp. and Tesla Inc., with a plan to increase its SUV lineup nearly tenfold and push sales of affordable electric cars.

As Volkswagen emerges from the diesel scandal, the company has intensified an overhaul at its largest division, with the aim of giving the Golf hatchback-maker more autonomy within the 12-brand group. In the process, VW's lineup will get bigger and more energy-efficient as it fills gaps and reviews the fate of aging classics including the Scirocco and Beetle.

“Our mission is clear: We want to make the Volkswagen brand competitive for the future,” Herbert Diess, VW's brand chief said at an event detailing first-quarter performance. “By 2025, we aim to play a leading role in the continuously changing automotive industry.”

VW is starting to restore profits and rein in bloated costs even as it takes a huge financial hit from the emissions crisis that erupted in September 2015. The Wolfsburg, Germany-based automaker is bracing for a cash outflow in the “double-digit billion-euro range” this year after earmarking 22.6 billion euros ($24.8 billion) in total costs so far for fines, buybacks and repairs of tainted cars. The scandal exposed weaknesses in the VW brand, which absorbed the brunt of the reputational damage.

Volkswagen last year agreed to save 3.7 billion euros in expenses and accelerate a restructuring that began before the crisis broke. A key area for reform is labor costs: Volkswagen employs about 80 percent more people than Toyota to produce roughly the same number of vehicles.

The overhaul is starting to bear fruit. Revenue is set to gain as much as 10 percent this year and the operating return on sales will reach the "upper end" of a target range between 2.5 percent and 3.5 percent, VW said Friday.

That puts the business on track to meet its margin goals of at least 4 percent by 2020 and 6 percent by 2025, said Arno Antlitz, the unit's chief financial officer. Excluding one-time items, the VW brand's first-quarter return on sales jumped to 4.6 percent.

"We will examine these results targets with a critical eye and raise them the moment we consider that what we have achieved is sustainable," Antlitz said.

To spur growth, the marque is introducing seven new sport utility vehicles by 2018 -- from two now -- and will add nine new models in China, according to the statement. VW expects to "significantly" reduce losses in North America this year and all other regions where the brand is currently in the red by 2020.

VW says the rollout will be the biggest product offensive in its history, with the goal of eventually having 19 SUVs globally and selling 1 million electric vehicles annually by 2025 to become the leading maker of battery-powered autos.

“When you think about possible successors to the Scirocco or the Beetle, you should probably think electric,” Diess told reporters on Friday. “With our new electric-car technology we're able to develop new variants of models in a shorter period of time and for less.”

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Dalia Fahmy