VW Group sales continue to deteriorate, as China joins the list of slowing markets. European recovery seems fragile at best. With VW on 5-year sector relative lows, some may believe the potential for a restructuring story is improving. We think improvement remains some time away. Remain EW.
VW Group's weakest sales performance since 2012: VW Group reported global sales at 858k units, down 2.6% in May yoy. The VW brand's downturn continued, with sales down 5.9% YoY with a 31.6k decline. To make matters worse, Audi, Skoda and VW commercial vehicles showed their worst performance in recent times. Group China sales were at 300k units, down 6.3% YoY and continued to decline (-5.6% yoy last month) for the third consecutive month, as China market growth has slowed.
Audi down in China in May: Audi registered 10% growth in the US, which was offset by flat Europe sales and a 2% decline in China. This is the first yoy China decline reported by Audi for many years. Audi YTD sales are up 4.3% yoy at 7.45m units, with China accounting for just 25% of Audi's global growth vs. more than 50% a year ago. Audi lags both BMW and Mercedes in yoy growth in FY15 YTD. Of the other brands, Porsche was up 25% yoy, and Skoda up only 1.4% yoy. We have slightly lowered our China growth and margin assumptions in this report.
VW to restructure its brand management: Automotive News (June 17) has reported that VW management is planning to change its group structure into four brand groupings with individual CEOs, making room for new management arrivals from BMW and Daimler, and trying to improve management flexibility and integration between those brands. We see
potential here mainly in terms of capital efficiency, rather than absolute EBIT upside, and we would warn that any capital efficiency actions would have some offsetting negative impact on growth. Although we recognise the potential for value creation from any capital structure changes, we do not believe these are likely.