VW Shakes up German Market by Taking First Steps to Factory Dealerships

Automotive News Reported to day that Volkswagen brand is shaking up its sales and distribution network in Germany, its largest market.

Over the last few months, the automaker has taken over the Eduard-Winter Group in Berlin and the Glöckler group in Frankfurt. The carmaker also has bought 49 percent of Munich-based Mahag and a 51 percent stake in Stuttgart's Hahn + Lang dealer group.

VW says the acquisitions are aimed at securing its sales presence in key metropolitan markets.

Industry insiders say VW had to make the investments because the dealer groups lacked the capital or were not willing to make extra investments demanded by the carmaker.

Fierce competition

VW said it does not plan to own more of its dealer network.

"Our intention is only to do this in Germany," a VW spokesman said. "There are no plans for other markets."

Philipp Rosengarten, a senior auto analyst at Global Insight's Frankfurt office, said competition for new-car sales in Germany's largest markets has become fierce. Not being a player in those markets would be detrimental to VW's success.

"In metro markets, there is a great deal of competition among dealers and that can hurt margins," Rosengarten said. "If you can control that dealer rivalry, you will be in better shape. If dealerships are well-managed, they can be enormous sources of profit."

Analysts say that with greater control over the selling process, VW will try to change the way its new cars are sold. VW wants to boost the number of option packages sold with its new cars.

Option packages are a big source of profit for an automaker.

The average VW buyer adds only about 10 percent in options, Citigroup analysts say. But BMW's Mini buyers add options worth 30 percent of the base price.

"Successful implementation requires changes to the selling process at VW," wrote analyst John Lawson, managing director of the automotive sector for Citigroup in London, in a recent report.

As part of its overall restructuring effort, VW's strategy also includes an expansion of its financial services unit beyond its core auto business. VW plans to expand its financial unit to offer more leasing and insurance contracts, analysts say.