Volkswagen Recover From Poor First Half To Make Profit in Second Half of 2020; Optimistic About 2021

After a ubiquitous decline in sales and profits in the corona-ravaging year of 2020 for most companies, corporations and financial institutions, German automaker, Volkswagen are now yearning to generate significantly more profit in the new year.

On Tuesday, March 16, at the presentation of the 2020 balance sheet, the management of the world’s second largest automotive group explained through CEO Herbert Diess, that they are aiming for an operating return at the upper end of the forecast range of between five and six and a half percent for this financial year. In the following years the company projects a sharp increase within the range of seven to eight percent.

In 2020, the operating return of the group fell from 6.7 to 4.3 percent. In the past fiscal year, VW’s group revenues shrank by almost twelve percent to 222.9 billion euros – and operating profit by 43 percent to 9.7 billion euros, as shown in their year-end annual report which has since been published.

Despite the atrocious start to the year, VW managed to recover and bounced with a strong second half of the year. In the first six months of 2020, the group had posted an operating loss of 1.49 billion euros.

VW delivered a impressive 9.31 million vehicles to customers worldwide, 1.67 million fewer than in 2019. The company attributed this “almost exclusively” to the pandemic and the measures taken to contain it.

Diess described the performance in the crisis year 2020 as good and commendable. China was especially pivotal in the recovery of the group, as it represents Volkswagen most important market. The Group’s core brand, the Volkswagen Pkw, made it into the profit zone with a strong second half of the year.

Before interest, taxes and special items from the diesel affair, the annual report for the brand showed a profit of 454 million euros. This profit was after a poor first half of 2020 instigated by the Corona crisis, as the brand with the VW logo had accumulated an operating loss of 1.5 billion euros.

Now the strategy of the same platforms and components, which the group first used for cars with combustion engines and then for electric cars, is to be expanded to include software and battery technology which is expected to further reduce costs. At the same time, VW wants to accelerate the transition to a mobility service provider that also offers self-driving vehicles.

The slump in profits is however not so significant in Diess’ income. According to the annual report, the 62-year-old will receive total remuneration of 7.7 million euros for 2020, just under 700,000 euros less than in the previous year.

The annual bonus for Diess, which is based on the operating result and the return, has halved to around two million euros. At the same time, however, the top manager earned 1.8 million euros in variable remuneration, which he received for the first time from the change in the remuneration system. That is three times more than Diess received in 2019 in back payments from deferred bonus payments.

In the remuneration system that was revised in 2017, VW uses the share price and earnings per share for the past three years as the basis for the long-term bonus. The total remuneration also includes pension benefits of almost 1.6 million euros.

The Volkswagen group has an impressive lineup of brands that include Audi, Bentley, Bugatti, Ducati, Jetta, Lamborghini, Porsche, SEAT, and Skoda.