Asset Sales Could Be a Catalyst for VLKAY Stock
The Volkswagen AG (ADR) (OTC:VLKAY) group has considerable firepower, owning valuable and profitable assets that would generate billions of dollars on the auction block, saving the core of VW and reversing Volkswagen stock’s bearish trend in the long run.
For the time being, Volkswagen has remained silent and even stoic. The CEO of Volkswagen AG’s Audi division, Rupert Stadler, recently sent a reassuring letter to some of the company’s workers, insisting that Lamborghini, Ducati, and Italdesign would not be sold. However, as management tries to protect VW stock by assembling the large sums required to fulfill the company’s obligations, it cannot avoid considering the sale of non-core assets. (Source: “Dieselgate, il capo di Audi ai dipendenti italiani: ‘Non vendiamo Ducati e Lamborghini’,” La Repubblica, November 13, 2015.)
The VW-Controlled Brands That Could Be Sold Off
In fact, numerous brands with tremendous and individual models may soon cease to orbit around Volkswagen. The company has a rather rich portfolio of brands, platforms, body styles, engine sizes, and more to offer, which may thrive under different ownership, seeing as their prospects have been clouded by the Volkswagen emission scandal known as “Dieselgate.”
Volkswagen’s Skoda and Seat, the generalist brands that make “affordable” cars (not including the $100,000+ V12 “Phaeton” sedan), will remain the cornerstones to generate large sales. However, VW could easily fill any lingering demand for Skoda or Seat, which have limited appeal outside of Europe. Even in Europe, the brands have real appeal only in some countries.
Chart courtesy of www.StockCharts.com
The current “Beetle” has not enjoyed any sales records in North America and the “Eos” convertible is even fewer. VW engineers may already be leading the aforementioned Phaeton toward the chopping block. The Audi “A8” could fill any residual demand for the large super-sedan, while VW stock would gain from the elimination of a product that has always been somewhat controversial. The Phaeton was a symbol of both VW’s success and excess, celebrating longtime Volkswagen AG boss Ferdinand Piech’s leadership.
While advanced, the Phaeton was an ill-conceived project that cost VW several thousand euros for every model sold, some having estimated that VW has lost well over $2.0 billion on the first-generation Phaeton, which was intended to compete with the likes of the BMW “7” series and the Mercedes “S” class. (Source: “Cost-cutting VW baffles experts with Phaeton plans,” Automotive News Europe, January 28, 2015.)
Piech ordered a brand new factory to build the Phaeton in Dresden, where staff, dressed in white and on a factory floor made of maple parquet flooring, hand assembles the Phaeton, which shares its platform with a Bentley. In addition, future owners of the model may observe as their cars are assembled. Even a limousine version was on offer.
The Phaeton, which was an excellent car by dynamic and refinement standards, was a marketing disaster. It failed to get any significant market traction in North America, where sales were stopped in 2006. Since then, the model has suffered a long and steady decline. On the very eve the news of Dieselgate broke out in the media, VW announced its plans to make an all-electric Phaeton.
The focus on the Phaeton helps to demonstrate just how much duplication there is within the VW group and the fact that Volkswagen stock would benefit from the rationalization, notwithstanding the emissions scandal. Seat and Skoda offer too many overlapping models.
Here’ the Bottom Line on VLKAY Stock
In this scenario, the most appealing brands for potential buyers are the luxury brands, including Bentley, Lamborghini, and Bugatti. Lamborghini, which enjoyed a record production year with 78% more cars coming out of the factory in Sant’Agata, is planning the production of an SUV in Italy, which should certainly appeal to Ferrari.
The famous car brand and Formula 1 racing team would be able to continue making sports cars, while profiting from the appeal of SUVs in North America and the Gulf states. Bugatti, which makes a car that despite its $1.5-million+ sticker price, actually costs the company more money to produce than it makes on its sales, is also a likely spinoff or sale target.
Ducati, a motorcycle company that VW bought in 2012, is enjoying one of its best years ever, having sold a record 50,000 bikes this year. (Source: “Ducati breaks sales records, readies to show new motorcycles,” Clutch & Chrome, November 12, 2015.) That could be a sales target, because it is profitable and it can fetch a good price. As a motorcycle maker, Ducati is also well outside the VW core business and as the company looks for ways to consolidate, holders of VLKAY stock should appreciate the possibility of its spinoff.