VW's MAN Sticks to Lofty Margin Goal Ahead of Possible Truck IPO
(Bloomberg) -- Volkswagen AG’s MAN unit is sticking to a profitability target it fell short of for years amid painful cost-cutting, underscoring the ambitious goal of the German automaker’s truck division to generate industry-leading returns as it prepares for a possible share sale.
MAN still aims to generate an operating profit margin of about 8 percent even as some business areas like smaller vehicles or buses are unlikely to achieve that level, Chief Executive Officer Joachim Drees said Wednesday in an interview at the biannual commercial vehicle show in Hanover, Germany.
“I do want to have aspiring targets -- we might not get there in some areas, but what’s more important is that the whole organization adopts a mindset that constantly tries to make things better,” Drees said. “We changed a lot in recent years and made a lot of improvements, but we want more.”
Boosting MAN’s returns is vital for parent VW’s truck division that was recently renamed Traton AG to deliver on a target of an average operating profit margin of 9 percent across industry cycles. Traton’s Munich, Germany-based MAN subsidiary lags behind sister brand Scania in terms of profitability. Scania specializes in lucrative heavy-duty trucks, whereas MAN offers a full range of commercial vehicles from the TGE delivery van to the heavy-duty TGX range. Smaller vehicles tend to be less profitable than larger ones.
MAN as a whole improved its operating margin to 4.3 percent in the first half of the year from 4 percent in the year-earlier period. Its truck and bus operations had a margin of 5.5 percent.
Boosting efficiency across the entire organization is important to finance huge investments for new technology like electric vehicles and digital services at a time when truck demand in key markets is robust.
“We want to take the next step now and become more weather-proof for when market conditions change,” Drees said. “That includes further growth in Europe and narrow the distance to the number one,” he said, referring to European market leader Mercedes-Benz trucks, a unit of Daimler AG.
Europe is the main sales region for both MAN and Scania. VW’s supervisory board this week gave the go-ahead to prepare Traton, which comprises Scania, MAN and a business in Brazil, to access capital markets as it considers an initial public offering next year. VW truck chief Andreas Renschler said Tuesday the timing of a possible deal is fluid and depends on market conditions. The proceeds would generate fresh funds to expand outside Europe and fuel a challenge to global truck-industry leaders Daimler and Volvo AB.
Drees said there is no set time frame yet for the split-up of MAN SE, an industrial conglomerate controlled by VW since 2011 with a history that roots back 260 years. Its truck and bus operations have been folded into Traton, and its business producing large diesel and turbo engines as well a holding in gearbox maker Renk AG are due to be shifted to another unit within VW.
VW’s Traton unit will host a capital markets day for analysts and investors on Thursday.
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