Volkswagen Aktiengesellschaft, the company known to most Americans as VW, wants to become the world’s largest car company within a decade. VW has almost no chance of realizing that aspiration because it did not use the disintegration of the US car companies to get a sizable share of the world’s largest auto market. VW’s piece of the US market is about 1%. VW cannot make up for its deficit by doing well throughout the rest of the world.
[youtube=http://www.youtube.com/watch?v=D1WvntMNqDQ&w=560&h=340&fmt=18]
VW’s one reasonable chance to get enough of the American car market to realize its global plans was to get control of Chrysler. For some inexplicable reason it let a smaller and financially weaker European car group, Fiat, get the deal to run the No.3 American auto company. VW could have had the support of the US government is taking control of Chrysler through a Chapter 11 action and the closing of 789 dealers which made make the US car company’s distribution much more efficient. The Administration was anxious enough make Chrysler viable that Fiat put up virtually no cash. Fiat will share its technology with Chrysler in exchange for what could eventually be a 35% stake in Chrysler. In reality, the Italian company has de facto control of Chrysler. The UAW, which has 55% of the American company, and the US and Canadian government, which have 10%, will almost certainly be willing to sell out their interests in exchange for something more liquid, probably cash. It will only take a year or two of Chrysler doing well for Fiat to be able to finance a transaction with some ease.
Most measures show Chrysler with about 9% of the car and light truck market. The means it will sell about one million vehicles in the US this year. VW could have bought Chrysler at a fire sale and pushed its worldwide sales to close to 7.5 million. Continuing success in Latin America, Europe, and China coupled with a substantial presence in America would have put VW in a position to have a shot, albeit a difficult one, of catching Toyota as the No.1 car company in the world by the end of the next decade. As it turned out, the blunder it made by not taking what would have been a modest risk in the US, has almost certainly cost it any chance to reach its goal.
For more 24/7 Wall St. TV visit us here.
Executive Producer: Philip MacDonald
Top Gaining Stocks
Top Losing Stocks