VW No.1 Car Company Worldwide? An Industry Where It Does Not Matter

VW may have passed Toyota (TM) as the world’s No.1 car company just as Toyota passed GM (GM) a year ago. The companies all operate in an industry where being on the top of the pile does not matter much. It is probable that each of these firms losses money on the great majority of the cars they sell. To make matter worse, market share may be a weakness as the auto industry moves out of the recession.

It seems more and more likely that modest-sized and nimble auto makers like BMW and Hyundai, who do not have to maintain factories in distant corners of the world and do not have to develop and market dozens of individual products may hold an advantage in a fragmented car industry. The behemoths that rely on their ability to maintain massive capital spending and their cost structures can be a do them nearly irreparable harm in a weak economy.

According to Reuters, “Volkswagen AG may have passed Toyota Motor Corp as the world’s top selling automaker in the first quarter, helped by robust demand in its main markets, while its Japanese rival suffered sharp declines.”

The US market is a part of the trap that VW could fall into. While chasing Toyota and GM, it cannot ultimately stay in first place without having a dominant position in the American market. It has turned out that spending huge sums to gain market share in US has been an Achilles heel for both Toyota and GM. Each has made money in the US, but the losses that may accumulate during the recession will be tremendous. If each had focused more on the profitable end of the market and decided it would not maintain a large number of brands, they would probably have been better off.

VW may have gotten what it hoped for, but the price will be higher than it expected.

Douglas A. McIntyre