Cody Link May 4, 2014 MKT 359 – Kuehl
Midterm SWOT Analysis: Volkswagen Automobile Group Strengths: Strong 2014 First Quarter Sales: The Volkswagen Group saw strong growth during the first quarter with increase in sales revenue of more than 2.7% (Volkswagen 1). Additionally, despite a still unsure global economy, operating profits have increased and the company has maintained a high liquidity at 17.7 billion dollars globally (5). Much of this success furthers the intensity to meet the 2018 sales goal, in units, for Volkswagen and Audi brands of 1 million cars per year. "The Volkswagen Group has established a strong position in recent years…we must now continue improving our position and maintain our successful course as part of the systematic implementation of our Strategy 2018", said Prof. Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen (2). Even with some of the group‟s brands experiencing lower operating profits, namely Audi, as they have invested heavily in technological innovations, brands like Bentley have had huge success with operating profit jumps of 65.7% year-over-year (11). TDI (Turbo-direct injection) Clean Diesel Technology: Automobile buyers are becoming more and more concerned with fuel economy as prices for gasoline steadily rise. Most will opt for hybrid vehicles as being the preferred alternative but Volkswagen Group has focused its alternative fuel vehicles on diesel propulsion across all brands. VW and Audi were the primary innovators in clean diesel technology and have commanded the market ever since. TDI Clean Diesel vehicles use “ultra-low-sulfur diesel” which produces 98.5% better environmental emissions than the diesel predecessors of the 1970s (Hewitt 4). The reduction in toxic exhaust emissions reduces excessive amounts of sulfur to be released into the air resulting in acid rain (4). Despite being on the leading edge of automotive diesel technologies, many other import competitors have begun investing in diesel; Mercedes-Benz has even gone so far as creating a system which filters the exhaust from its diesel offering, the Blu-Tech, which mutes the often aggressive smell of diesel (5). Other accolades for the TDI, and diesel technology at large include: better combustion, reduced engine noise, and improved vehicular longevity (6, 7, 8). Expanding brand through diversification: Dating back to 1934, Volkswagen has a longstanding history as being the “people‟s car” (VW 2). The Volkswagen group has changed immensely since then and has broadened its portfolio, just recently to include Porsche, a luxury sports car manufacturer also located in Germany. The purchase of Porsche, which occurred in July 2012, cost the People‟s Car maker a reported 4.46 billion euros accounting for 50.1% of the Porsche brand Volkswagen Group didn‟t already own (3). Volkswagen Group has further expanded its product offerings by purchasing Ducati, a motorcycle manufacturer and has rumored to show interest in the commercial truck
manufacturer, Navistar (4). The acquisition of Navistar would add to the breadth of its commercial division as it has already purchased Scania and MAN (4). The strategy has proven to be successful by all initial accounts as Volkswagen Group saw record breaking sales globally 2011. Across all of its markets and brands, Volkswagen Group, with the exception of Seat, sold 8.5 million units in 2011 (6). As a result, Volkswagen and her sister brands dethroned GM and Toyota as being the world‟s leading volume automaker and has chiseled away at the global sales goal of 11 million vehicles by 2018 (4). Weakness: The MQB Modular Platform: In an effort to reach its lofty goal of one million global sales per year, Volkswagen Group has moved towards a universal frame platform which serves as the structure for such vehicles as the VW Golf, Audi A3, Skoda Octavia and Seat Leon (8). Cost efficient, yes. But, a ripple in production quality could expose the automaker to devastating recalls and large expenses to fix affected vehicles. “If a single part has a problem, and that part is in many different models, a recall affects many more vehicles” claims Lawrence Frost of Reuters. In the past, sister company Audi has utilized light-weight materials like aluminum to shed pounds off of curb weight of their vehicles but not partnered to utilize a single frame platform. Despite possible future recall potential, Volkswagen group plans to modify and expand the MQB platform to its ultra-luxury offerings, “many of the group's ultra-luxury and performance brands will employ a third component set called MSB, designed for premium rear- and all-wheel-drive vehicles such as the Porsche 911, the Bentley Continental and the Lamborghini Gallardo” (Frost 18). Hasty globalization: In addition to its efforts in America and the one million vehicles sales per year goal it set for 2018, VW as a whole has invested large amounts of money on emerging markets, notably in China. China accounts for a large percentage of the company‟s global sales, specifically 30% annually (Frost). Future investment in the Chinese market is set at an estimate 13 billion dollars which some say contradicts VW‟s mantra for even disbursement of funding. Compounding the problem, a larger, more focused investment in China could leave other quickly growing markets like the United States and Russia underfunded and as a result, under-developed (Frost). Misconceptions about Clean Diesel: One aspect about diesel technology, something VW and its sister brands are highly invest in, is the stigma that follows it. A once denounced propulsion method, diesel gets a bad rap needlessly. Most often people assume that diesel engines return lower fuel economy numbers – not true. In most cases, diesel powered vehicles return fuel economy numbers akin to that of a gasoline-hybrid vehicle because of its economical use of power in lower gears (Valdes-Dapena 10). Other criticize the noise emitted by diesel vehicles; today‟s clean diesel cars utilize technology that gently forces fuel into the cylinder even as the piston moves up and down, ultimately reducing noise and vibration (11). A constant flow of small fuel injections powers the cylinders and maintains a quieter driving experience without the tradition clatter from a 1970s diesel offering, Opportunities: Continuing to diversify vehicular portfolio: Despite having an already allencompassing vehicle portfolio, Volkswagen has decided to broaden its spectrum by
introducing a 7-seat SUV to the American market. "We want many more American drivers to feel at home with our group brands and are working to achieve that with 100 percent commitment and plenty of passion," CEO Martin Winterkorn said (Nelson 2). To do so, VW has pledged seven billion dollars to the American market; disbursement of funds has not been disclosed entirely but currently Chattanooga is favored over Puebla, Mexico where larger volume products like Golf, Jetta, and Beetle are produced (3).This comes on the heels of a multi-billion investment in the Chattanooga plant which produces the Passat and employed thousands in the state of Tennessee. Production of the 7-seater is also yet to be decided but rumors have suggested it will be made alongside the Passat in Tennessee. Additionally, the Crossblue, VW‟s 7-seat offering, will position itself above the existing Touareg (mid-sized) that VW offers in gasoline, diesel and hybrid variations. The Crossblue will fill a void where the Touareg lacks as the latter is priced 11% higher than its closest competitor, the Lexus RX and cannot compare to its larger cousin, the Lexus GX (10). Continuing its quest for one million annual sales, Volkswagen will also introduce the reengineered Phaeton luxury sedan which was considered a flop during its introduction in the mid-2000s (7). Despite, slowing sales among the namesake brand, Volkswagen Group has seen large growth in luxury offerings Audi and newly acquired Porsche with annual deliveries up 14% year-over-year. Catering to American Market: In hopes of attaining its one million unit sales goal by 2018, Volkswagen Group has expanded production capacity globally especially in China and the United States. The domestic plant, located in Chattanooga, TN, will account for 800,000 Passat mid-sized sedans which were designed with the American consumer in mind (Choi 2). The company returned its best sales year to date since the record set in 1973 with 438,133 units in 2012 but will still need a bump of some 45% to reach the 800,00 domestic product goal and large one million unit sales goal (2). A consistent plan to market the volume leader for the Volkswagen brand will need to adopt for both new and used cars as the global market will be flooded with the newly redesigned sedan. Threats: Competition: The competition within the automobile industry is fierce, regardless of the type of vehicle you wish to sell. Volkswagen Group of America competes in many different vehicle classes ranging from economy to luxury – which forces them to continually maintain a competitive edge and strive forward with technical innovation across all of its brand offerings. In North America, Volkswagen AG competes across a few different buying segments of the industry. Volkswagen, the namesake of the automobile group and largest volume automaker in the group faces steep competition from Japanese companies like Honda, Toyota and others, the likes of which include: Hyundai, Kia, and Ford. The second and smaller segment it competes in is the import high group, which is more prestigious and offers products like Audi, Lamborghini Bentley and Porsche. The aforementioned automobile manufactures offer less sales per month but high per unit margins and often more notoriety due to perceived value and presence amongst higher income consumers and public figures. In a market where consumers are becoming savvier to decision makers like price, style and fuel economy, Volkswagen AG must be on the forefront of technological and stylistic design in order to forward its market share and its loyal customer base. Domestic Union Litigation: Upon opening its first domestic manufacturing facility in more than two decades here in the United States, Volkswagen faced large amounts of backlash for its supposed involvement, direct or otherwise, to block unionization at the
Chattanooga, TN plant which produces the popular Passat and the yet unnamed 7-seat crossover for the largely American consumer. Union leaders claimed that lawmakers from the Tennessee legislature made incentive threats the automaker to keep its employees from unionizing. “These are not people who made idle threats…These are people who had the ability to take away the lifeline for that company in that state,” said Richard Trumka, President of the American Federation of Labor and Congress of Industrial Organizations (Covert 3). State senator Bill Watson (R), claims “it has been widely reported that Volkswagen has promoted a campaign that has been unfair, unbalanced and, quite frankly, un-American in the traditions of American labor campaigns" (Snavely 5). Watson continues by asserting that the only way the automobile manufacture will receive more incentive investments by the state of Tennessee is if they choose to unionize with the UAW, United Automobile Association (5). This is a very large threat to Volkswagen Group because it could jeopardize further investment in production in America and move towards expansion at its plants in Mexico and in Europe (6). If an agreement cannot be reached, Tennessee could lose out on a seven billion dollar investment Volkswagen intends to make in America to reach its 2018 sales goal of 1 million vehicles during one year for both the Volkswagen and Audi brands (4). Volkswagen wishes to remain as impartial as possible during the contentious period by stating that “outside political groups won't divert us from the work at hand: innovating, creating jobs, growing and producing great automobiles" (7). Changes in Management: In response to lackluster sales in America, Volkswagen Group decided to shake up management in Volkswagen‟s American branch. Jonathon Browning was replaced by Michael Horn in December 2013 as a means to continue the trek for one million sales (Nelson 14). The parent brand must hasten “the speed at which [they] bring new models to the market and innovation to the market," Horn told a representative of Rueters in January (15). Progress is already being made across the brand spectrum by introducing the Audi A3 as well as products like the compact crossover offering from Porsche, the Macan.
Works Cited Choi, Joseph. "Is Volkswagen's North American-built Passat Losing Steam?" NADA. N.p., 29 May 2013. Web. 05 May 2014. Covert, Bryce. "Union President: Politicians‟ Interference In VW Union Vote „Clear Violation Of The Law‟." ThinkProgress. N.p., 25 Mar. 2014. Web. 04 May 2014. Hewitt, Ben. "Clean Diesel Advantages - Hybrid vs Diesel Cars." Popular Mechanics. Hearst Communications, 1 Jan. 2008. Web. 05 May 2014. Frost, Laurence, Andreas Cremer, and Paul Lienert. "Insight: Has Volkswagen Discovered the Holy Grail of Carmakers?" Reuters. Thomson Reuters, 11 Feb. 2013. Web. 04 May 2014. Nelson, Gabe. "VW Will Add SUV to U.S. Lineup in 2016 amid $7 Billion Investment Plan." Automotive News Europe. Crain Communications, Inc,, 13 Jan. 2014. Web. 6 May 2014. Snavely, Brent. "Tenn. Lawmakers Issue Incentive Threat in VW Union Move." USA Today. Gannett, 11 Feb. 2014. Web. 04 May 2014.
Valdes-Dapena, Peter. "Diesel Cars: 7 Worries, 7 Answers." CNNMoney. Cable News Network, 11 Mar. 2008. Web. 05 May 2014. "Volkswagen Group Makes a Good Start to 2014." MarketWatch. MarketWatch, Inc., 29 Apr. 2014. Web. 05 May 2014. "VW Conquers the World." The Economist. The Economist Newspaper, 07 July 2012. Web. 06 May 2014.
