Strategic Management
Content
Assignment
Volkswagen(VW)
Sarmad Ali Abbasi 8/30/2010
2
LETTER OF TRANSMITTAL
Dated: 30th August¶10 To: Sir Salah uddin Dear Sir, I hereby present my Assignment on µVolkswagen. This Assignment is submitted on the date 30th August ¶10, with respect to the criteria you demanded. I have tried my utmost and hope that this Assignment is up to your expectations and requirements.
Thanking you,
Sarmad Ali Abbasi
3
Assignment # 2, August 23, 2010
Volkswagen (VW) 1. Do a SWOT Analysis of VW based on scenario as prevalent in the Case Study (attached).
2. What strategic inferences would you draw from VW s Value Chain Analysis? 3. (a) Explain which two key value activities at VW were yielding a sustained competitive advantage and how?
(b)
Explain which two activities were a source of drain on VW s resources and how?
4. What corrective measures would you recommend for 3 (b) above?
5. Carry out a research to find out if, and how, did VW overcome these strategic issues after 2001 and what is the prevalent scenario?
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JULY 23, 2001
Volkswagen
Ferdinand Piëch has powered Volkswagen to the top slot in Europe. Now he is stepping down, and troubles are building. What's next? Value Chain Analysis explains VWs reasons for Success and Concern.
Volkswagen CEO Ferdinand Piëch has every reason to feel satisfied. The Austrian engineer and scion of one of Europe's most noted automotive dynasties are less than a year from retirement as chief of the German carmaker. As he looks back, Piëch can boast of one of the great turnarounds in automotive history. Since taking the top job at the Wolfsburg headquarters in 1993, his engineering brilliance has helped resurrect Volkswagen quality and turn models such as the Golf and Passat into all-time best-sellers. Piëch's relaunch of the Beetle has cemented VW's hold in the U.S. market. Only VW has successfully revived a communist-era carmaker, Skoda of the Czech Republic. Even now, as the global car industry lurches through a stressful year, VW expects profits to grow: In 2000, they more than doubled, to $1.8 billion, on sales of $76 billion. Yet Piech was stressed. Value Chain analysis suggested two key value activities had driven his success---product development and operations. It also suggested that two other activities were becoming serious potential drains on the value chain and value he had so meticulously driven----human resource development and marketing and sales. After he steps down as boss, Piëch wants to be named chairman of VW's supervisory board, a position that must be approved by a majority of shareholders. If he can goose the stock, Piëch should be a shoo-in for chairman, a seat that gives him power to influence management and executive appointments. That could create complications for his successor. "The new CEO will have a big handful of challenges," says one former board member. "But the one [challenge] that's make-or-break will be managing Piëch." But the question remains: Would the continued presence of Piëch be good for VW? Piëch the engineer has always excelled. "He is completely focused on the product. He lives, breathes, loves cars," says a former manager of VW's vast Wolfsburg assembly plant in Lower Saxony. The VW he has revived is in many ways the legacy of the best of the old Europe. It makes products that are the envy of rivals, employs thousands of workers for life, and enjoys the protection of the government: The state of Lower Saxony owns 18.6% of VW. Piëch is close to German Chancellor Gerhard Schröder, who as Prime Minister of Lower Saxony sat on VW's supervisory board. (The Chancellor's office now employs Audis in its fleet.) But Piëch the executive will bequeath quite a number of problems to the company's next boss. VW, Europe's largest carmaker and the fourth-largest globally in terms of vehicle sales, has long struggled to improve profitability and productivity.
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The company's ambitious push to drive the brand up market risks hurting its existing premium marquee, Audi. VW has far too many highly paid workers at its German plants. Yet politics prevents a radical restructuring. Many outside shareholders, who have seen the stock stagger back down to 1997 levels, distrust the numbers they're given by the company. Finally, some former execs say Piëch cow¶s subordinates, squelching debate at VW's top levels.
All these issues loom just as uncertainty is mounting about what will happen next. The supervisory board, which oversees the management board in German companies, is not expected to announce a successor--probably Pischetsrieder--until November. Meanwhile, the industry picture is darkening. Sales are soft in the U.S., Europe, and South America. The last thing VW needs is a messy transfer of power at the moment it should be building on Piëch's gains.
PRODUCT DEVELOPMENT But Piëch is driven. Unlike many other auto chiefs, he calls the shots on product design and engineering. And if you work for Dr. Piëch, you had better get it right. In Wolfsburg, executives joke that PEP, the acronym for the product development process (Produktentwicklungsprozess) really stands for Piëch entscheidet persönlich--Piëch decides himself. And he can do it fast. He is said to have sketched out the Audi's all-wheel-drive system on the back of an envelope.
Without question, those achievements have been considerable. Volkswagen's four main brands--VW , Audi, Seat, and Skoda--have taken 19% of the European auto market, a gain of some three points in eight years, mostly at the expense of General Motors Corp. and Ford. Not bad for a company that eight years ago suffered from quality problems and a paucity of hit models. In South America, VW vehicles account for one-quarter of car sales, and in China, onehalf. The top VW brands in the U.S. are the Jetta, Passat, and the new Beetle, a remake of the humble bug so beloved of '60s youth. Part of VW success lies in its quirky features. At night, the dashboard instruments the driver looks at, such as the speedometer and clock, light up in red, while those the driver touches, such as the radio, are backlit in blue. "It gives the vehicle some soul, which many of VW's competitors lack horribly," says Wes Brown, a consultant at Nextrend Inc., a Thousand Oaks (Calif.) auto-research firm.
OPERATIONS When Piëch isn't drawing up the plans, he's examining them with a gimlet eye. No screaming, of course: That's not the way for Piëch, an Austrian blueblood. One former transmission-plant manager said Piëch would tour the factory quietly, reviewing production data sheets and zeroing 6
in instantly on any numbers suggesting something was amiss in the manufacturing process. "He's the only person whose very presence on the floor would make my stomach begin to hurt," says this manager. Terrifying, yet inspiring. Under Piëch's tutelage, VW sweats the small stuff. Check this out, says one rival exec: On VW models, the gap between body panels--say between the front fender and wheel panel--has been cut to 1 millimeter. That puts them in a league with the industry's best. Obsession with detail is one reason VW has succeeded so brilliantly in reviving its fortunes in the U.S., where the VW brand was road kill a decade ago. Last year, VW and Audi sales in the U.S. jumped 14%, to 437,000 units, for a combined 2.5% market share. That's up from a microscopic 0.5% in 1993. Although VW trails its Japanese rivals, it's the only European massmarket carmaker in the U.S.
HUMAN RESOURCES MANAGEMENT In 1993, to buy labor peace, he cut the workweek at VW's German plants from 35 hours to 28.8. That saved 30,000 jobs. But now VW workers can make upwards of $34 an hour. Piëch is trying to push through a plan to lower the base wages of new German workers and link them to output instead of hours. If this doesn't succeed, VW threatens to put new projects in places such as the Czech Republic, where wages are less than one-third German levels. Cutting such a deal is turning into a hard slog. The unions concede they need to be more flexible. But they are resisting management's demands to increase the workweek to more than 40 hours during peak production without paying overtime. Investors have long harbored the suspicion that Piëch and his top managers care little for the margins. As a result, VW stock has one of the lowest price-earnings ratios in the European auto sector. The government of Lower Saxony, the biggest investor, worries more about jobs than shareholder value. Five of VW's seven German factories are located in Lower Saxony, and they're among the least productive in Europe. According to World Markets Research Center in London, production at the Wolfsburg plant runs at 46 cars per worker per year, compared with 101 at Nissan Motor Co.¶s British factory in Sunderland. MARKETING & SALES VW also has gaps in its product lineup. It has nothing to offer in the category of compact minivans--the scaled-down versions of minivans that are popular in Europe. A sport-utility vehicle will not come out until 2002. "We're [also] missing some niche models--sports car, roadster, another convertible," says Jürgen Lehmann, manager of the Autohaus Moltke dealership in Stuttgart. VW has to sort out these issues while the competition gets tougher.
It all spells a big headache for Piëch's successor. While speculation lingers that Pischetsrieder 7
might be upstaged at the last minute, the bigger issue is whether he or any new CEO will be able to set his own strategy and unleash more of VW's earnings potential. At the least, Piëch's presence in the background will complicate the succession. Bottom-line, VW¶s value chain presents interesting challenges for Piech¶s successor, Bernd Pischetsrieder. Inheriting extra ±ordinary strengths in product development and manufacturing operations, and an impressive market presence world-wide, he faces emerging value chain weaknesses in other areas he has to tackle.
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Answer 1
SWOT Analysis
Strengths:
The strengths of Volkswagen according to the case study are: y Re launch of the Beetle Premium small car model cemented VW's hold in the U.S. market y Even though the global car industry lurches through a stressful year, VW expects profits to grow, in 2000; they more than doubled, to $1.8 billion, on sales of $76 billion worldwide.
Weakness:
The weaknesses of Olper¶s Kheer mix according to their market plan are: y VW did not have some car models available in the market. The competitors on the other hand were better prepared for the European market. y VW was still developing SUV sports utility vehicle while the competitors took advantage of the market situation.
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Opportunities:
y Cost of labor could be reduced by opening another plant in Czech Republic y Both American European markets want newer models and increase in variety of cars
Threats:
y Competitors such as Audi are providing consumer value goods such as convertibles, minivans, and coupes y There is a lot of politics which prevents reconstruction of factory workers
Answer # 2
VW offers quality cars and they focused on customer wants and needs. In Operations a lot of focus is done in reviewing production data sheets and on minuet details on cars. Making sure that the data sheet is correct, if any figures were out or wrong the corrections would be made.
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Answer # 3A
They emphasized heavily on production development and operations in which they looked for minuet details in order to make the car perfect in every way. They also started to add features to make them have eye catching.
Answer # 3B
Human resource development marketing and sales. Workers hours were cut down, there were too many workers in German auto sector, and if they could assemble in Czech Republic the labor would have been cheaper. Cars were not available such as Minivans, SUVS, Etc. So overall there was a potential marketing gap.
Answer # 4
Introduce new cars and product lines in order to fill up market gap for Minivans, convertibles, SUVS and etc. USA is a large market they should introduce more models to existing three models already launched. They should either downsize their workers or reduce the work hours. Overtimes works should be reduced to only those particular days when the production is high. Other than that they could assemble and set up manufacturing industries in other places of the world, such as Czech Republic where labor is much cheaper, so their cost of production can be reduced overall.
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Answer # 5
Volkswagen began introducing an array of new models after Bernd Pischetsrieder became Volkswagen Group CEO (responsible for all Group brands) in 2002. The sixth-generation VW Golfwas launched in 2008, came runner-up to the Opel/Vauxhall Insignia in the 2009 European Car of the Year, and has spawned several cousins: VW Jetta, VW Scirocco, SEAT León, SEAT Toledo, koda Octavia and Audi A3 hatchback ranges, as well as a new mini-MPV, the SEAT Altea. The GTI, a "hot hatchback" performance version of the Golf, boasts a 2.0 L Turbocharged Fuel Stratified Injection (FSI) direct injection engine. VW began marketing the Golf under the Rabbit name once again in the U.S. and Canada in June 2006. (The GTI had arrived to North America four months earlier). The fifthgeneration Jetta, and the performance version, the GLI, are also available in the United States and Canada. The sixth-generation Passat and the fifthgeneration Jetta both debuted in 2005, and VW has announced plans to expand its lineup further by bringing back the Scirocco by 2008. Other models in Wolfgang Bernhard's (Volkswagen brand CEO) "product offensive" include the Tiguan mid-sized SUV in 2008 and a Passat Coupé. In November 2006 Bernd Pischetsrieder announced his resignation as Volkswagen Group CEO, and was replaced by Audi worldwide CEO Martin Winterkorn at the beginning of 2007. Winterkorn is credited with making Audi a challenger to the dominance of BMW and Mercedes, and his design-led strategy has led to Audi being considered one of the most important brands in the world. Nevertheless, Volkswagen continues to have complicated relations with both unions and shareholders. The German state of Lower Saxony owns 20% of the stock.
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The B5.5 fifth-generation Passat facelift In North America, VW faced many challenges. After rising significantly between 1998 and 2001, VW's North American sales began to fall sharply leading to a 2005 loss of roughly US$1 billion for its operations in the U.S. and Canada. Profitability has not been strong, and the lack of reliability of the company's cars appears to bear some of the responsibility for this situation. By 2005, its models sat near the bottom of Consumer Reports reliability ratings, and J.D. Power and Associates ranked VW 35th out of 37 bands in its initial quality survey. Attempts to enter a new market segment also compromised Volkswagen's standing in North America. In 2002, Volkswagen announced the debut of its Phaeton luxury car, which was critically acclaimed but not well received in the marketplace. VW announced its discontinuance in the U.S. market for the 2007 model year due to the disappointing sales.
The 2006 Jetta Volkswagen in 2005, despite challenges, still maintained North American sales of 224,195²a dramatic increase from the low in 1993 when US sales totaled only 49,533 vehicles. Momentum continued for fiscal 2006, as VW's North American sales for the year were 235,140 vehicles, a 4.9 percent increase over 2005, despite a slump in domestic North American manufacturer's sales. VW plans to close out the decade with the release on several new vehicles worldwide and a barrage of advertising. In conjunction with the introduction of new models, production location of Volkswagen vehicles also underwent great change. The 2007 Eos, a hardtop convertible, is produced in a new facility in Portugal. All Golf¶s/Rabbits and GTIs as of 2006 are manufactured in Wolfsburg, Germany, rather than
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VW's Mexican factory in Puebla, where Golf¶s and GTIs for the North American market were produced from 1989 to 1998, and the Brazilian factory in Curitiba, where Golf¶s and GTIs were produced from 1999 to 2006. (The Jetta has primarily been made in Mexico since 1989). VW is also in the process of reconfiguring an automotive assembly plant in Belgium. The new models and investments in manufacturing improvements were noticed immediately by automotive critics. Favorable reviews for VW's newest cars include the GTI being named by Consumer Reports as the top sporty car under $25,000, one of Car and Driver magazine's "10 Best" for 2007, Automobile Magazine's 2007 Car of the Year, as well as a 2008 Motor Trend comparison ranking the mid-size Passat first in its class. The J. D. Power and Associates 2006 Automotive Performance, Execution and Layout (APEAL) Study scored Volkswagen fourteenth overall with strong performances by its new Jetta and Passat models.
The fifth-generation Golf, sold in North America as the Rabbit. Volkswagen is recognized .As one of the leading small diesel engine manufacturers, and is partnering with Mercedes and other companies to market Blue Tec clean diesel technology, calling it Blue Motion. Volkswagen has offered a number of its vehicles with a TDI (Turbocharged Direct Injection) engine, which lends class-leading fuel economy to several models. According to the United States Environmental Protection Agency, four of the ten most fuel-efficient vehicles available for sale in the U.S. in 2004 were powered by Volkswagen diesel engines. They were a three-way tie for 8th (TDI Beetle, TDI Golf, TDI Jetta) and ninth, the TDI Jetta Wagon. As of 2007, VW has not yet offered a gasoline/electric hybrid power train such as that in the Toyota Prius (though a diesel-electric hybrid 5th generation Jetta was produced as a test vehicle). In addition, all
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Volkswagen TDI diesel engines produced from 1996 to 2006 can be driven on 100%biodiesel fuel. For the 2007 model year, however, strict U.S. government emissions regulations have forced VW to drop most diesels from their U.S. engine lineup, but a new lineup of diesel engines compatible to U.S. standards are due for 2008.
The 2006 Eos hardtop convertible Volkswagen long resisted adding a utility vehicle to its lineup, but it finally relented with the introduction of the Touareg in the early 2000s, sharing major components with the Porsche Cayenne and Audi Q7 sport utility vehicles. Though acclaimed as a fine handling vehicle, the Touareg has been a modest seller at best. Some automotive analysts blame the Touareg's absence of a third-row seat, the relatively poor fuel economy, and the high vehicle mass. VW plans to add a compact SUV with styling influences from its "Concept A" concept vehicle. On 20 July 2006, VW announced that the new vehicle would be called the Tiguan. Since the discontinuance of the T4 in 2003 and decision not to bring the T5 to the US market, it was ironic that Volkswagen lacked a van in its North American lineup considering that VW was a major player in the development of the class with its original Transporter. The firm did however launch a rebadged DaimlerChrysler named the Volkswagen Routan for the U.S. and Canadian markets in 2008. Owing to technical difficulty adapting the Polo to meet North American vehicle regulations, VW presented in 2006 the "Iroc" as a concept of the proposed 2009 Scirocco as a potential new small model. In September 2006, Volkswagen began offering the City Golf and City Jetta only for the Canadian market. Both models were originally theMk4 Golf and
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Jetta but were later replaced with the Brazilian versions of the Golf Mk4 and Bora. The City Golf and City Jetta were introduced to compete with the Toyota Yaris and Honda Fit. Volkswagen's introduction of such models is seen as a test of the market for a subcompact and, if successful, may be the beginnings of a thriving subcompact market for Volkswagen. When Martin Winterkorn became the eighth postwar CEO of Volkswagen, the company made several personnel changes in Wolfsburg. Though the VW Group already had their presence in India with koda Auto, Volkswagen introduced the Passat and Touareg with TDI engine to India's automobile market in September 2007. The VW 1L will be available in 2010, in limited numbers. The 1L is a lightweight two-person vehicle made out of a magnesium frame covered by an unpainted carbon-fiber skin. Every component of the vehicle is intended to reduce the vehicle's weight. Aluminum brakes, carbon-fiber wheels, titanium hubs, and ceramic bearings all contribute to the vehicle's light weight of a mere 290 kg. To reduce the weight even further, and to increase the aerodynamics of the vehicle, there are no rearview mirrors. Instead, the car is equipped with cameras that display visual information to the driver through the internal LCD screen. The car is extremely fuelefficient; each gallon of fuel will take you over 235 miles. The fuel tank holds just 1.7 gallons, making the entire travel distance capability about 400 miles per tank. Its top speed is 120 km/h (75 mph), which although not very fast is a welcome tradeoff for the huge savings in fuel consumption .On 15 July 2008 Volkswagen, announced that they will construct an automobile assembly plant in Chattanooga, Tennessee. This plant will produce cars specifically designed for North America beginning with the New Midsize Sedan, which will be more competitive with North American market leaders Toyota Camry and Honda Accord. Production is scheduled to begin in early 2011 and is expected to end more than five years of losses in the world's largest auto market. In 9 December 2009, Volkswagen AG and Suzuki reached a common understanding to establish a close long-term strategic partnership. Volkswagen will purchase 19.9% of Suzuki¶s issued shares.
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In February 2010, Volkswagen announced the latest Polo Blue Motion model with a 1.2 liter TDI three-cylinder common rail diesel engine rated at 75 PS and 133 lb ft of torque from 2000 rpm. This model emits 91g/km of CO2 and has a combined cycle fuel consumption of 80.7 mpg.
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Volkswagen(VW)
Sarmad Ali Abbasi 8/30/2010
2
LETTER OF TRANSMITTAL
Dated: 30th August¶10 To: Sir Salah uddin Dear Sir, I hereby present my Assignment on µVolkswagen. This Assignment is submitted on the date 30th August ¶10, with respect to the criteria you demanded. I have tried my utmost and hope that this Assignment is up to your expectations and requirements.
Thanking you,
Sarmad Ali Abbasi
3
Assignment # 2, August 23, 2010
Volkswagen (VW) 1. Do a SWOT Analysis of VW based on scenario as prevalent in the Case Study (attached).
2. What strategic inferences would you draw from VW s Value Chain Analysis? 3. (a) Explain which two key value activities at VW were yielding a sustained competitive advantage and how?
(b)
Explain which two activities were a source of drain on VW s resources and how?
4. What corrective measures would you recommend for 3 (b) above?
5. Carry out a research to find out if, and how, did VW overcome these strategic issues after 2001 and what is the prevalent scenario?
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JULY 23, 2001
Volkswagen
Ferdinand Piëch has powered Volkswagen to the top slot in Europe. Now he is stepping down, and troubles are building. What's next? Value Chain Analysis explains VWs reasons for Success and Concern.
Volkswagen CEO Ferdinand Piëch has every reason to feel satisfied. The Austrian engineer and scion of one of Europe's most noted automotive dynasties are less than a year from retirement as chief of the German carmaker. As he looks back, Piëch can boast of one of the great turnarounds in automotive history. Since taking the top job at the Wolfsburg headquarters in 1993, his engineering brilliance has helped resurrect Volkswagen quality and turn models such as the Golf and Passat into all-time best-sellers. Piëch's relaunch of the Beetle has cemented VW's hold in the U.S. market. Only VW has successfully revived a communist-era carmaker, Skoda of the Czech Republic. Even now, as the global car industry lurches through a stressful year, VW expects profits to grow: In 2000, they more than doubled, to $1.8 billion, on sales of $76 billion. Yet Piech was stressed. Value Chain analysis suggested two key value activities had driven his success---product development and operations. It also suggested that two other activities were becoming serious potential drains on the value chain and value he had so meticulously driven----human resource development and marketing and sales. After he steps down as boss, Piëch wants to be named chairman of VW's supervisory board, a position that must be approved by a majority of shareholders. If he can goose the stock, Piëch should be a shoo-in for chairman, a seat that gives him power to influence management and executive appointments. That could create complications for his successor. "The new CEO will have a big handful of challenges," says one former board member. "But the one [challenge] that's make-or-break will be managing Piëch." But the question remains: Would the continued presence of Piëch be good for VW? Piëch the engineer has always excelled. "He is completely focused on the product. He lives, breathes, loves cars," says a former manager of VW's vast Wolfsburg assembly plant in Lower Saxony. The VW he has revived is in many ways the legacy of the best of the old Europe. It makes products that are the envy of rivals, employs thousands of workers for life, and enjoys the protection of the government: The state of Lower Saxony owns 18.6% of VW. Piëch is close to German Chancellor Gerhard Schröder, who as Prime Minister of Lower Saxony sat on VW's supervisory board. (The Chancellor's office now employs Audis in its fleet.) But Piëch the executive will bequeath quite a number of problems to the company's next boss. VW, Europe's largest carmaker and the fourth-largest globally in terms of vehicle sales, has long struggled to improve profitability and productivity.
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The company's ambitious push to drive the brand up market risks hurting its existing premium marquee, Audi. VW has far too many highly paid workers at its German plants. Yet politics prevents a radical restructuring. Many outside shareholders, who have seen the stock stagger back down to 1997 levels, distrust the numbers they're given by the company. Finally, some former execs say Piëch cow¶s subordinates, squelching debate at VW's top levels.
All these issues loom just as uncertainty is mounting about what will happen next. The supervisory board, which oversees the management board in German companies, is not expected to announce a successor--probably Pischetsrieder--until November. Meanwhile, the industry picture is darkening. Sales are soft in the U.S., Europe, and South America. The last thing VW needs is a messy transfer of power at the moment it should be building on Piëch's gains.
PRODUCT DEVELOPMENT But Piëch is driven. Unlike many other auto chiefs, he calls the shots on product design and engineering. And if you work for Dr. Piëch, you had better get it right. In Wolfsburg, executives joke that PEP, the acronym for the product development process (Produktentwicklungsprozess) really stands for Piëch entscheidet persönlich--Piëch decides himself. And he can do it fast. He is said to have sketched out the Audi's all-wheel-drive system on the back of an envelope.
Without question, those achievements have been considerable. Volkswagen's four main brands--VW , Audi, Seat, and Skoda--have taken 19% of the European auto market, a gain of some three points in eight years, mostly at the expense of General Motors Corp. and Ford. Not bad for a company that eight years ago suffered from quality problems and a paucity of hit models. In South America, VW vehicles account for one-quarter of car sales, and in China, onehalf. The top VW brands in the U.S. are the Jetta, Passat, and the new Beetle, a remake of the humble bug so beloved of '60s youth. Part of VW success lies in its quirky features. At night, the dashboard instruments the driver looks at, such as the speedometer and clock, light up in red, while those the driver touches, such as the radio, are backlit in blue. "It gives the vehicle some soul, which many of VW's competitors lack horribly," says Wes Brown, a consultant at Nextrend Inc., a Thousand Oaks (Calif.) auto-research firm.
OPERATIONS When Piëch isn't drawing up the plans, he's examining them with a gimlet eye. No screaming, of course: That's not the way for Piëch, an Austrian blueblood. One former transmission-plant manager said Piëch would tour the factory quietly, reviewing production data sheets and zeroing 6
in instantly on any numbers suggesting something was amiss in the manufacturing process. "He's the only person whose very presence on the floor would make my stomach begin to hurt," says this manager. Terrifying, yet inspiring. Under Piëch's tutelage, VW sweats the small stuff. Check this out, says one rival exec: On VW models, the gap between body panels--say between the front fender and wheel panel--has been cut to 1 millimeter. That puts them in a league with the industry's best. Obsession with detail is one reason VW has succeeded so brilliantly in reviving its fortunes in the U.S., where the VW brand was road kill a decade ago. Last year, VW and Audi sales in the U.S. jumped 14%, to 437,000 units, for a combined 2.5% market share. That's up from a microscopic 0.5% in 1993. Although VW trails its Japanese rivals, it's the only European massmarket carmaker in the U.S.
HUMAN RESOURCES MANAGEMENT In 1993, to buy labor peace, he cut the workweek at VW's German plants from 35 hours to 28.8. That saved 30,000 jobs. But now VW workers can make upwards of $34 an hour. Piëch is trying to push through a plan to lower the base wages of new German workers and link them to output instead of hours. If this doesn't succeed, VW threatens to put new projects in places such as the Czech Republic, where wages are less than one-third German levels. Cutting such a deal is turning into a hard slog. The unions concede they need to be more flexible. But they are resisting management's demands to increase the workweek to more than 40 hours during peak production without paying overtime. Investors have long harbored the suspicion that Piëch and his top managers care little for the margins. As a result, VW stock has one of the lowest price-earnings ratios in the European auto sector. The government of Lower Saxony, the biggest investor, worries more about jobs than shareholder value. Five of VW's seven German factories are located in Lower Saxony, and they're among the least productive in Europe. According to World Markets Research Center in London, production at the Wolfsburg plant runs at 46 cars per worker per year, compared with 101 at Nissan Motor Co.¶s British factory in Sunderland. MARKETING & SALES VW also has gaps in its product lineup. It has nothing to offer in the category of compact minivans--the scaled-down versions of minivans that are popular in Europe. A sport-utility vehicle will not come out until 2002. "We're [also] missing some niche models--sports car, roadster, another convertible," says Jürgen Lehmann, manager of the Autohaus Moltke dealership in Stuttgart. VW has to sort out these issues while the competition gets tougher.
It all spells a big headache for Piëch's successor. While speculation lingers that Pischetsrieder 7
might be upstaged at the last minute, the bigger issue is whether he or any new CEO will be able to set his own strategy and unleash more of VW's earnings potential. At the least, Piëch's presence in the background will complicate the succession. Bottom-line, VW¶s value chain presents interesting challenges for Piech¶s successor, Bernd Pischetsrieder. Inheriting extra ±ordinary strengths in product development and manufacturing operations, and an impressive market presence world-wide, he faces emerging value chain weaknesses in other areas he has to tackle.
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Answer 1
SWOT Analysis
Strengths:
The strengths of Volkswagen according to the case study are: y Re launch of the Beetle Premium small car model cemented VW's hold in the U.S. market y Even though the global car industry lurches through a stressful year, VW expects profits to grow, in 2000; they more than doubled, to $1.8 billion, on sales of $76 billion worldwide.
Weakness:
The weaknesses of Olper¶s Kheer mix according to their market plan are: y VW did not have some car models available in the market. The competitors on the other hand were better prepared for the European market. y VW was still developing SUV sports utility vehicle while the competitors took advantage of the market situation.
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Opportunities:
y Cost of labor could be reduced by opening another plant in Czech Republic y Both American European markets want newer models and increase in variety of cars
Threats:
y Competitors such as Audi are providing consumer value goods such as convertibles, minivans, and coupes y There is a lot of politics which prevents reconstruction of factory workers
Answer # 2
VW offers quality cars and they focused on customer wants and needs. In Operations a lot of focus is done in reviewing production data sheets and on minuet details on cars. Making sure that the data sheet is correct, if any figures were out or wrong the corrections would be made.
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Answer # 3A
They emphasized heavily on production development and operations in which they looked for minuet details in order to make the car perfect in every way. They also started to add features to make them have eye catching.
Answer # 3B
Human resource development marketing and sales. Workers hours were cut down, there were too many workers in German auto sector, and if they could assemble in Czech Republic the labor would have been cheaper. Cars were not available such as Minivans, SUVS, Etc. So overall there was a potential marketing gap.
Answer # 4
Introduce new cars and product lines in order to fill up market gap for Minivans, convertibles, SUVS and etc. USA is a large market they should introduce more models to existing three models already launched. They should either downsize their workers or reduce the work hours. Overtimes works should be reduced to only those particular days when the production is high. Other than that they could assemble and set up manufacturing industries in other places of the world, such as Czech Republic where labor is much cheaper, so their cost of production can be reduced overall.
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Answer # 5
Volkswagen began introducing an array of new models after Bernd Pischetsrieder became Volkswagen Group CEO (responsible for all Group brands) in 2002. The sixth-generation VW Golfwas launched in 2008, came runner-up to the Opel/Vauxhall Insignia in the 2009 European Car of the Year, and has spawned several cousins: VW Jetta, VW Scirocco, SEAT León, SEAT Toledo, koda Octavia and Audi A3 hatchback ranges, as well as a new mini-MPV, the SEAT Altea. The GTI, a "hot hatchback" performance version of the Golf, boasts a 2.0 L Turbocharged Fuel Stratified Injection (FSI) direct injection engine. VW began marketing the Golf under the Rabbit name once again in the U.S. and Canada in June 2006. (The GTI had arrived to North America four months earlier). The fifthgeneration Jetta, and the performance version, the GLI, are also available in the United States and Canada. The sixth-generation Passat and the fifthgeneration Jetta both debuted in 2005, and VW has announced plans to expand its lineup further by bringing back the Scirocco by 2008. Other models in Wolfgang Bernhard's (Volkswagen brand CEO) "product offensive" include the Tiguan mid-sized SUV in 2008 and a Passat Coupé. In November 2006 Bernd Pischetsrieder announced his resignation as Volkswagen Group CEO, and was replaced by Audi worldwide CEO Martin Winterkorn at the beginning of 2007. Winterkorn is credited with making Audi a challenger to the dominance of BMW and Mercedes, and his design-led strategy has led to Audi being considered one of the most important brands in the world. Nevertheless, Volkswagen continues to have complicated relations with both unions and shareholders. The German state of Lower Saxony owns 20% of the stock.
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The B5.5 fifth-generation Passat facelift In North America, VW faced many challenges. After rising significantly between 1998 and 2001, VW's North American sales began to fall sharply leading to a 2005 loss of roughly US$1 billion for its operations in the U.S. and Canada. Profitability has not been strong, and the lack of reliability of the company's cars appears to bear some of the responsibility for this situation. By 2005, its models sat near the bottom of Consumer Reports reliability ratings, and J.D. Power and Associates ranked VW 35th out of 37 bands in its initial quality survey. Attempts to enter a new market segment also compromised Volkswagen's standing in North America. In 2002, Volkswagen announced the debut of its Phaeton luxury car, which was critically acclaimed but not well received in the marketplace. VW announced its discontinuance in the U.S. market for the 2007 model year due to the disappointing sales.
The 2006 Jetta Volkswagen in 2005, despite challenges, still maintained North American sales of 224,195²a dramatic increase from the low in 1993 when US sales totaled only 49,533 vehicles. Momentum continued for fiscal 2006, as VW's North American sales for the year were 235,140 vehicles, a 4.9 percent increase over 2005, despite a slump in domestic North American manufacturer's sales. VW plans to close out the decade with the release on several new vehicles worldwide and a barrage of advertising. In conjunction with the introduction of new models, production location of Volkswagen vehicles also underwent great change. The 2007 Eos, a hardtop convertible, is produced in a new facility in Portugal. All Golf¶s/Rabbits and GTIs as of 2006 are manufactured in Wolfsburg, Germany, rather than
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VW's Mexican factory in Puebla, where Golf¶s and GTIs for the North American market were produced from 1989 to 1998, and the Brazilian factory in Curitiba, where Golf¶s and GTIs were produced from 1999 to 2006. (The Jetta has primarily been made in Mexico since 1989). VW is also in the process of reconfiguring an automotive assembly plant in Belgium. The new models and investments in manufacturing improvements were noticed immediately by automotive critics. Favorable reviews for VW's newest cars include the GTI being named by Consumer Reports as the top sporty car under $25,000, one of Car and Driver magazine's "10 Best" for 2007, Automobile Magazine's 2007 Car of the Year, as well as a 2008 Motor Trend comparison ranking the mid-size Passat first in its class. The J. D. Power and Associates 2006 Automotive Performance, Execution and Layout (APEAL) Study scored Volkswagen fourteenth overall with strong performances by its new Jetta and Passat models.
The fifth-generation Golf, sold in North America as the Rabbit. Volkswagen is recognized .As one of the leading small diesel engine manufacturers, and is partnering with Mercedes and other companies to market Blue Tec clean diesel technology, calling it Blue Motion. Volkswagen has offered a number of its vehicles with a TDI (Turbocharged Direct Injection) engine, which lends class-leading fuel economy to several models. According to the United States Environmental Protection Agency, four of the ten most fuel-efficient vehicles available for sale in the U.S. in 2004 were powered by Volkswagen diesel engines. They were a three-way tie for 8th (TDI Beetle, TDI Golf, TDI Jetta) and ninth, the TDI Jetta Wagon. As of 2007, VW has not yet offered a gasoline/electric hybrid power train such as that in the Toyota Prius (though a diesel-electric hybrid 5th generation Jetta was produced as a test vehicle). In addition, all
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Volkswagen TDI diesel engines produced from 1996 to 2006 can be driven on 100%biodiesel fuel. For the 2007 model year, however, strict U.S. government emissions regulations have forced VW to drop most diesels from their U.S. engine lineup, but a new lineup of diesel engines compatible to U.S. standards are due for 2008.
The 2006 Eos hardtop convertible Volkswagen long resisted adding a utility vehicle to its lineup, but it finally relented with the introduction of the Touareg in the early 2000s, sharing major components with the Porsche Cayenne and Audi Q7 sport utility vehicles. Though acclaimed as a fine handling vehicle, the Touareg has been a modest seller at best. Some automotive analysts blame the Touareg's absence of a third-row seat, the relatively poor fuel economy, and the high vehicle mass. VW plans to add a compact SUV with styling influences from its "Concept A" concept vehicle. On 20 July 2006, VW announced that the new vehicle would be called the Tiguan. Since the discontinuance of the T4 in 2003 and decision not to bring the T5 to the US market, it was ironic that Volkswagen lacked a van in its North American lineup considering that VW was a major player in the development of the class with its original Transporter. The firm did however launch a rebadged DaimlerChrysler named the Volkswagen Routan for the U.S. and Canadian markets in 2008. Owing to technical difficulty adapting the Polo to meet North American vehicle regulations, VW presented in 2006 the "Iroc" as a concept of the proposed 2009 Scirocco as a potential new small model. In September 2006, Volkswagen began offering the City Golf and City Jetta only for the Canadian market. Both models were originally theMk4 Golf and
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Jetta but were later replaced with the Brazilian versions of the Golf Mk4 and Bora. The City Golf and City Jetta were introduced to compete with the Toyota Yaris and Honda Fit. Volkswagen's introduction of such models is seen as a test of the market for a subcompact and, if successful, may be the beginnings of a thriving subcompact market for Volkswagen. When Martin Winterkorn became the eighth postwar CEO of Volkswagen, the company made several personnel changes in Wolfsburg. Though the VW Group already had their presence in India with koda Auto, Volkswagen introduced the Passat and Touareg with TDI engine to India's automobile market in September 2007. The VW 1L will be available in 2010, in limited numbers. The 1L is a lightweight two-person vehicle made out of a magnesium frame covered by an unpainted carbon-fiber skin. Every component of the vehicle is intended to reduce the vehicle's weight. Aluminum brakes, carbon-fiber wheels, titanium hubs, and ceramic bearings all contribute to the vehicle's light weight of a mere 290 kg. To reduce the weight even further, and to increase the aerodynamics of the vehicle, there are no rearview mirrors. Instead, the car is equipped with cameras that display visual information to the driver through the internal LCD screen. The car is extremely fuelefficient; each gallon of fuel will take you over 235 miles. The fuel tank holds just 1.7 gallons, making the entire travel distance capability about 400 miles per tank. Its top speed is 120 km/h (75 mph), which although not very fast is a welcome tradeoff for the huge savings in fuel consumption .On 15 July 2008 Volkswagen, announced that they will construct an automobile assembly plant in Chattanooga, Tennessee. This plant will produce cars specifically designed for North America beginning with the New Midsize Sedan, which will be more competitive with North American market leaders Toyota Camry and Honda Accord. Production is scheduled to begin in early 2011 and is expected to end more than five years of losses in the world's largest auto market. In 9 December 2009, Volkswagen AG and Suzuki reached a common understanding to establish a close long-term strategic partnership. Volkswagen will purchase 19.9% of Suzuki¶s issued shares.
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In February 2010, Volkswagen announced the latest Polo Blue Motion model with a 1.2 liter TDI three-cylinder common rail diesel engine rated at 75 PS and 133 lb ft of torque from 2000 rpm. This model emits 91g/km of CO2 and has a combined cycle fuel consumption of 80.7 mpg.
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