Volkswagen creates a giant

By Doug Jack

It had long been a dream of Dr. Ferdinand Piëch, Chairman of the Supervisory Board of Volkswagen, to create a European automotive giant, active in all products from cars through to heavy commercial vehicles.
While some industry observers said that he wanted to rival Daimler, compared with Mercedes-Benz, Volkswagen has a far more extensive range of cars, through its various brands.
After many twists and turns Piëch finally achieved his goal. He had secured a controlling interest in MAN, having previously achieved the same position in Scania, two of Europe’s best-known commercial vehicle brands.
Scania, an old established Swedish company based near Stockholm, has a well-deserved reputation for the quality and particularly the driveability of its buses and trucks. It also has a very long and proud record of profitability, even through the recent financial crisis that severely affected many markets. For the first six months of 2011, Scania reported 15 percent return on sales.
Although Scania only builds trucks and buses, for many years it had a joint venture with Volkswagen, importing its cars and vans into Sweden until 2002. The following year, Volkswagen bought 34 percent of Scania and increased its stake to nearly 70 percent in 2008.
Scania assembles interurban and coach chassis in a compact unit attached to the main truck facility in Sweden, with bus chassis assembled at its Omni plant in Northern Poland. The company also assembles some bus and coach chassis at its factories in Brazil and Mexico. Built to the same dimensions and standards as those in Sweden, these separate plants can help each other in sudden times of high demand.
Headquartered in Munich, Germany, MAN claims to have been engineering the future since 1758. The company is best known for its extensive range of buses and trucks built not only in Germany, but also Poland and Turkey, with joint ventures for trucks in China and India.
MAN launched an unsuccessful bid to take over Scania in 2006. Volkswagen quickly bought up to 20 percent of MAN, which bought just over 14 percent of the voting shares of Scania.

The Neoplan Cityliner has proven popular in Europe.

In March 2007, Volkswagen raised its stake to 29.9 percent in MAN and there was speculation it planned to merge MAN and Scania.
The first serious move by MAN was unexpected. Volkswagen assembled trucks and bus chassis in Rosende, Brazil, but brought in a very high percentage of each product.  Suppliers made the engines, gearboxes, axles, frames and truck cabs.
This was an important step in MAN’s ambitions to become a global player. But this would be a completely different type of operation from the MAN and Scania factories in Europe, which manufactures a very high percentage of vehicles in-house.
Volkswagen announced in June its plans to increase its shareholding in MAN, with the Executive and Supervisory Boards rejecting its initial offer.
However, on July 4th, an easy date for you to remember, Volkswagen announced that it had secured more than 56 percent of the shares in MAN.
Prior to that, Volkswagen had been encouraging both companies to look for synergies. They suggested that there could be savings in research and development, purchasing, and perhaps on some components.
The directors of MAN and Scania were both opposed to any higher degree of integration, because they valued their independence and customer loyalty. In fairness to Volkswagen, it has successfully managed a large portfolio of car brands, including Volkswagen and Audi in Germany, Skoda in the Czech Republic, Seat in Spain and the famous Bentley in the United Kingdom. It has also recently taken control of Porsche.
There may be some commonality in platforms, but each brand has its own dealers throughout Europe, and even further afield in some instances.
On buses and coaches, distinction between the MAN and Scania philosophies is quite clear.
MAN builds complete integral city buses in Poland, available with diesel, gas or hybrid drivelines; and interurban and medium segment coaches, including some Neoplan models, in a factory in Ankara, Turkey. It builds top segment luxury coaches in Plauen, Germany, and promotes them under the premium Neoplan brand. All MAN structures are in steel to thoroughly protect against corrosion. There are also chassis derivatives of most models, built in a factory at Salzgitter in Germany, ironically not far from the Volkswagen headquarters in Wolfsburg.
MAN is very good at packaging the drivetrain on its low-floor city buses, benefiting from engines smaller than Scania. Their horizontal position lends to a superior interior layout. With the exception of midibuses, Scania has an equally extensive a product range manufactured and supplied in another way. The company is principally a supplier of chassis and works with a wide number of bodybuilders around the world. It builds city and suburban buses under the Omni brand in Northern Poland. Totally different from MAN, the structures are of bolted aluminium, which is much more expensive than steel, resistant to corrosion and lighter in weight, which saves on fuel.
The manufacture of interurban coaches for European markets is primarily sub-contracted to the Finnish bodybuilder, Lahti under the OmniExpress brand. Scania has also collaborated closely with Irizar of Spain on interurban and luxury coaches in a number of European markets. More recently, Scania has started to import Higer coachwork from China as a complete Scania product for the medium segment of the European coach market.

This version of the Lion’s City bus is used on rural routes.

Scania is pursuing a strategy to gradually reduce the number of bodybuilders and strengthen relationships with those it sees as longer-term strategic partners.
With Volkswagen holding a controlling interest in MAN and Scania, an investigation by the European competition authorities will ensure the two companies do not have a dominant position in any of the European markets, which could distort competition — an unlikely risk, considering Daimler, Volvo-Renault and Iveco-Irisbus. Alexander Dennis, VDL and Van Hool also hold strong positions in their domestic markets.
Volkswagen has had representatives on the board of Scania for some time, and knows how that business works. The reasonable profits by Scania in recent years from its bus and coach operations have not escaped its notice. On the other hand, MAN has noted that its bus and coach operations vary from slight profits to losses, which, although not horrific, are nevertheless a cause for concern. There have been costs in rationalizing the model range, but should now start to bear fruit.
Volkswagen will be able to achieve savings in research, development and purchasing. MAN and Scania are both well down the line on developing engines which will meet Euro 6 emission standards that come into force for vehicles licensed on or after Jan. 1, 2014. Until now, both have preferred to meet emission standards by Exhaust Gas Recirculation, whereas all the other main European players use selective Catalytic Reduction.
Electronics and Telematics are potential areas for research collaboration. Sharing those development costs would make sound sense.
It is too early to say how long the competition authorities will take to assess the potential merger, but if all goes well, they could give MAN and Scania approval by the time of Busworld Kortrijk in October.
While MAN and Scania make most of their own major components, the combined negotiating power of both companies will be more than enough to send shivers through suppliers of many smaller proprietary parts, for instance, wheels and tires. Imagine securing those accounts.

Doug Jack is with Transport Resources in the United Kingdom.