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New chief puts VW's strategy in reverse

From latimes| March 20,2007

Martin Winterkorn, the new chief executive of Volkswagen, has laid out his strategy for Europe's largest carmaker as he puts the focus on volume growth to help fill its under-used factories.

The new strategy, which places a much larger focus on technology and quality rather than cost cutting, is a striking shift from that of his predecessor, as Winterkorn reversed decisions such as to consider selling component factories or to stop selling the upscale VW Phaeton in the U.S.

Winterkorn said that one of the priorities would be to clearly define what each of VW's seven brands — which include Audi, Bentley, Bugatti, Lamborghini, Skoda and Seat — stand for while getting more synergies from closer integration among them.

Winterkorn, who took over as chief executive in January, is hoping to apply his successful strategy at the upscale Audi brand to the whole group and in particular the long-suffering VW brand.

But some investors are skeptical that such a volume strategy can be so easily translated to a mass-market brand. They are also worried that the previous focus on cost cutting might slip.

"He is changing a tried and tested strategy for one that is risky," said a large British shareholder. A senior VW supervisory board director said: "A volume strategy is highly risky — we have to watch him very, very closely."

But Winterkorn deflected the criticism, saying VW must stand for "solid, precise, quality-driven, high-value vehicles" and that he saw no risks with his strategy.

Restructuring would continue, he said, but a focus would be put on improving productivity and boosting production rather than shedding capacity. "From what I have seen the component factories are competitive," he added.

It came as Germany-based VW slightly raised its earnings guidance, saying it would make at least its previous 2008 pretax profit target of $5.1 billion euros ($6.7 billion). Its operating profit before special items hit 4.4 billion euros last year.

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