March 20, 2017 12:00 PM, EDT

Volkswagen Trucks Division Targets Strong Profitability Gain in 2017

Dado Galdieri/Bloomberg News

Volkswagen's truck division aims to significantly increase its profitability this year as deepening cooperation between the MAN and Scania brands and improving overseas markets spur business, the company said March 20.

Volkswagen, which launched a new truck and bus division in 2015 to challenge global rivals Daimler and Volvo is targeting a long-term operating margin target of 9%, up from 6.1% last year.

"We are not striving to become a volume champion, we want to be the most profitable ones," CEO Andreas Renschler told journalists, referring to improving markets in Western Europe, Russia and China.

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But Matthias Gruendler, head of finance, made clear a significant improvement in financial results requires a rebound in the key Brazilian market where the VW division commands a 37% share of the country's commercial-vehicles market.

Overall truck and bus sales in Brazil have been falling for four years, but demand is expected to rebound slightly in the second half of the year amid the improving economy with a chance for stronger growth in 2018, Gruendler said.

"Brazil has always been an important market and is characterized by a high degree of cyclicality," Andreas Renschler said.

Under Renschler, who ran Daimler Trucks before joining VW in February 2015, Europe's largest automotive group has also been seeking to expand its footprint in international truck markets.

Last year, VW announced a stake purchase in U.S. truck maker Navistar International Corp which may earn the German group access to the vast North American truck market, and is also in talks about finding a new partner in China.

"We are currently in discussions about different opportunities," Renschler said. "All options are open" including a possible increase in MAN's stake in China's Sinotruk and finding a new partner.