Toyota outpaced by Volkswagen? Not if you deduct UBAR

WOLFSBURG, GERMANY - MARCH 11: Cars by German automaker Volkswagen AG stand parked in one of two towers at the Autostadt customer reception center at the Volkswagen factory on the day of VW's annual press conference on March 11, 2010 in Wolfsburg, Germany. VW Chairman Martin Winterkorn admitted that VW had been affected by the worldwide financial crisis in 2009, though reported that many of VW's brands reported growth, especially in China. VW customers who come to Wolfsburg to pick up their car in person receive their new car after a robot extracts the car from one of the two towers and brings it to them via an automated, underground transport system. Each of the two towers hold 400 cars. (Photo by Sean Gallup/Getty Images)

Toyota made headlines today, as Volkswagen surpassed the Japanese automaker in half year sales and production. Actually, it’s old news. VW had edged past TMC in May already. And the distance between the two has narrowed in June. And then, there’s UBAR.

World’s Largest Automakers
6 Month 2015
Jan-Jun 2015 Jan-Jun 2014 YoY 2015 proj.
Toyota 5,013,300 5,174,796 -3.1% 10,027,000
Volkswagen 5,040,000 5,070,000 -0.6% 10,080,000
GM 4,861,000 4,922,000 -1.2% 9,722,000
Source: Company data. GM, VW: Deliveries. Toyota: Production. Blue: Estimate

Projecting Jan-June data out towards the end of the year, Volkswagen will be 53,000 units ahead of Toyota, if both maintain their current trajectories. When we did the exercise last month, the projection had Volkswagen 200,000 units ahead of Toyota. What happened?

China imploded.

Volkswagen Group June 2015
Region June’15 June’14 YoY Jan-June 15 Jan-June 14 YoY
Volkswagen Group 840,400 877,900 -4.30% 5,040,000 5,070,000 -0.5%
Europe 380,000 360,000 5.6% 2,110,000 2,040,000 3.7%
WEURExD 203,800 189,100 7.8% 1,140,000 1,070,000 6.9%
Germany 122,600 113,700 7.8% 668,300 626,100 6.7%
CEEUR 53,300 59,700 -10.7% 304,000 343,900 -11.6%
Russia 14,400 24,500 -41.2% 84,300 142,600 -40.9%
North America 80,300 74,700 7.5% 451,200 425,900 6.0%
U.S.A 53,200 50,100 6.2% 295,000 288,000 2.4%
South Am 49,000 60,000 -18.3% 297,300 383,700 -22.5%
Brazil 34,000 46,900 -27.5% 211,800 301,000 -29.6%
Asia Pacific 290,000 340,000 -14.7% 1,940,000 2,000,000 -3.0%
China 250,000 300,000 -16.7% 1,740,000 1,810,000 -3.9%
Source: Volkswagen

China is Volkswagen’s largest market, about three times the size of VW’s home market Germany. Volkswagen Group deliveries in China were down 17 percent in June. For the first six months of the year, VW’s China business is down 4 percent. That according to the official numbers.

Data in China can be quite oblique, and it’s easy to goose your numbers without anybody noticing. If the usually reliable Wolfsburg sources are right, VW’s China sales have been goosed for years, and to the tune of 60,000 to 100,000 units per annum. This being a German company, there even is a line item for inflated sales, with its own acronym. “They book the fake China sales as UBAR,” tells me a Wolfsburg informant. UBAR stands for “Unsold, But AAK Reported,” he says.  AAK is VW speak for Auslieferungen an Kunden, or deliveries to customers. UBAR are made-up deliveries to customers.

While goosed numbers may maintain bragging rights, at the end of the year, it’s the bottom line that counts. Volkswagen and GM have built a lot of capacity into the Chinese landscape, and unused capacity can be a ROIal pain. Toyota on the other hand had called a plant building moratorium years ago. In April, Toyota announced that it will build its first new plants in China and Mexico, where they will be ready in around 2018/2019. Until then, TMC will make do with current capacities. With the global auto market in negative territory, Toyota has called peak car perfectly.

Note: tracks production, not sales, because this is how the world automaker umbrella organization OICA ranks automakers.

Toyota reports both sales and production, we take production. Volkswagen reports “deliveries” to wholesale – which is, at least for this exercise, close enough to production. GM did the same, but begun reporting retail sales for the Chinese market.