Volkswagen Profit drops 86%; Sales Decline

http://www.bloomberg.com/apps/news?pid=20601100&sid=aEtL7LDxc_ms

Summary

This article explains how the recession is causing Volkswagen, a German car producer, to see a 86% drop in net income and a 10% sales decline to 26 billion euros. However, the number of deliveries rose 8.9 percent, which means that the marketing plan was more quantity than quality. The main reason that Volkswagen is able to see an increase in its deliveries is because of China's rising economy and large market. An analyst from Fairesearch suggested selling these stocks because the ratio between revenue and deliveries is alarming. However, Volkswagen itself believes that it will perform better than the average market . The article further describes Volkswagen’s rise in most deliveries except in Audis. Also, the CEO of Volkswagen predicts 2010 to be a tough year and global auto markets will not return to pre-recession levels for several years. However, Volkswagen is still looking to take over Porsche's carmaking operations.

Connection

This relates to chapter 2 in that sales do not necessarily mean income. As even though Volkswagen's sales and deliveries were equal or greater than the previous year, there was too much of a decrease in the production-sales ratio to see the same results in net income. Quantity of the sales were kept as high as possible to disguise themselves as less impacted by the recession. The profit margin ratio that this results in would not be attractive to potential or current stockholders. However, this rise in inventory helped raise the net liquidity which can benefit the corporation’s intentions to take over the carmaking operations of Porsche.

Reflection

I think that while this strategy may not be reflected positively towards the company, it is a good move to keep stability in the auto market. Image is important in any type of business, and the increase in unit sales can keep typical customers interested. In such a competitive market in the modern society we have today, this is priority as there are too many choices out there. The decision to buy Porsche can also help brighten their image. However, this may be a risky move if all doesn't turn out the way they want. If there is another "dip" in the global economy, Volkswagen's hands may be tied due to the lack of recent income.