According to a recent report in Forbes, auto company spin-offs are the next big thing in downsizing. Their source at investment researcher Jefferies, Philippe Houchois, claims that the auto industry is in for a shake up this year as large empire building exercises are now out of fashion and many conglomerates will be spinning off some of their more profitable smaller brands in favor of a focus on their core product. There are a number of reasons to support this theory, including a declining auto industry, impatient shareholders looking for a stock price boost, and in Volkswagen’s case, a need to invest heavily in EV technology to drown out their dieselgate problems. Will Volkswagen actually spin off Porsche to be independent again? We’re not sure they will, but crazier things have happened.
“For now, we see better returns from undoing old business models than creating new ones,” says Houchois. “We see growing evidence that smaller entities may be better positioned to grow well-defined brands and comply with emissions regulations through mix-price and large manufacturers will come under increasing pressure to ‘choose their battles’ and reduce duplication and cross-subsidies as they transition and reallocate capital to new business models.”
On the trimming back docket in Houchois’ report are Volkswagen’s Scania-MAN truck division (valued at $20 billion dollars), and Porsche AG, which has been given an independent monetary value to Volkswagen of $62 billion. Volkswagen could admittedly use that cash influx to buy back some of their own corporate stock, giving their shareholders a quick boost in value. They could also invest some of it in hot button future-tech like EV infrastructure and self-driving functionality.
Others Aren’t So Sure
Michael Tyndall of Citi Research isn’t so sure. Because Germany requires co-determination, an equal representation on boards of directors between workers and stockholders, spinning off a smaller subsidiary is not quite as easy a task as it would be here in the US. Consolidation remains a constant theme in the auto industry, but Tyndall is not sure this is the way forward, at least for Volkswagen. Porsche is, after all, their most profitable division. Why put your cash cow out to pasture?