MARKETING STRATEGIES OF VOLKSWAGEN
Chapter 1 Introduction
1.1. Overview of Industry as whole
The automobile industry consists of a wide range of companies and organizations involved
in the designing and developing, of motor vehicles. It is considered as one of the world 's
most important economic sectors in terms of revenue.
The automotive industry comprises a wide range of companies and organizations involved
in the design, development, manufacturing, marketing, and selling of motor vehicles.It is
one of the world's largest industries by revenue (from 16 % such as in France up to 40 % to
countries like Slovakia). It is also the industry with the highest spending on research &
development.
The automotive industry, an essential economic criterion, is on the verge of new
technologies and innovations. Moreover, customers' demand for unique and costly features
is leading the automotive industry in the modern era. Globally the automobile industry is
supported by various factors such as the availability of skilled labour at low cost, robust
R&D centres, and low-cost steel production.
Globally, today's consumers use all-purpose vehicles, whether they are commuting alone to
work or taking the whole family to the beach. From today's viewpoint, combustion
engine-based powertrains will remain dominant, at least for the coming decade.
The global automotive market is dominated by major players such as Volkswagen, Toyota
Motor Corporation, Ford Motor Company and Honda Motor Company. These companies
offer an extensive variety of automotive, fulfilling all significant functions in a vehicle. The
key strategies adopted by these companies to sustain their market position are new product
developments, acquisitions, and partnerships & expansions.
The Asia Pacific is the largest market due to the growing demand for passenger cars and
fuel-efficient vehicles. The developments in engine technology are progressing
significantly, accompanying the rising emission standards across the globe. These factors
are notable patrons to the incremental growth of the automotive market in the region.
Moreover, the rising adoption of MHEVs(Mild Hybrid Electric Vehicles) in the Asia
Pacific is expected to drive automotive production. In Asia Pacific countries, winning
government incentives to simplify electric mobility and increased investments by
automakers are expected to drive the market.
The automotive industry is still one of the world's largest manufacturing sectors, but it
suffers from being very technology-focused as well as being relatively short-term focused.
There is little emphasis within the industry and its consultancy and analyst supply network
on the broader social and economic impacts of automobility and of the sector that provides
it.
It is projected that the global automotive industry will grow to just under nine trillion U.S.
dollars by 2030. It is anticipated that new vehicle sales will account for about 38 percent of
this value. Globally, Volkswagen Group and Toyota Motor are the leading carmakers in
terms of revenue. The Japanese auto giant generated almost 250 billion U.S. dollars in
revenue in 2020, while Volkswagen raked in a little more than 245 billion U.S. dollars. The
U.S.-based Tesla has also recorded a steep growth throughout 2021, as the brand with the
highest brand value growth worldwide across sectors. Electric vehicles have gained
popularity in the past years, with their use increasing over threefold between 2016 and 2019,
including battery electric and plug-in hybrid units.
The modern automotive industry is huge. In the United States it is the largest single
manufacturing enterprise in terms of total value of products, value added by manufacture,
and number of wage earners employed. One of every six American businesses is dependent
on the manufacture, distribution, servicing, or use of motor vehicles; sales and receipts of
automotive firms represent more than one-fifth of the country’s wholesale business and
more than one-fourth of its retail trade. For other countries these proportions are somewhat
smaller, but Japan, South Korea, and the countries of western Europe have been rapidly
approaching the level in the United States.
Diversity of products:
The automotive industry’s immense resources in production facilities and technical and
managerial skills have been devoted predominantly to the building of motor vehicles, but
there has been a consistent and strong incentive to extend into related products and
occasionally into operations whose relationship to automobiles is remote. The Ford Motor
Company, for example, once manufactured tractors and made the famous Ford Trimotor
all-metal transport airplane in the late 1920s and early ’30s. GM manufactured refrigerators
and diesel-powered railway locomotives. By the end of the 20th century, however, Ford
and GM had divested themselves of most of their nonautomotive operations and had spun
off the majority of their automotive component-making divisions into separate stock
companies—Delphi Automotive Systems in the case of General Motors and Visteon
Automotive in the case of Ford.
In Europe, but to a lesser extent, automakers also divested noncore operations, while
depressed economic conditions in Japan forced auto companies there to begin divorcing
themselves from nonautomotive and components companies in which they had long held
interests. By the late 1990s the trend was toward more international consolidation of core
automotive operations.
New car development:
The process of putting a new car on the market has become largely standardized. If a
completely new model is contemplated, the first step is a market survey. Since there may be
an interval of five years between this survey and the appearance of the new car in the
dealers’ showrooms, there is a distinct element of risk, as illustrated by the Ford Motor
Company’s Edsel of the late 1950s. (Market research had indicated a demand for a car in a
relatively high price range, but, by the time the Edsel appeared, both public taste and
economic conditions had changed.) Conferences then follow for engineers, stylists, and
executives to agree on the basic design. The next stage is a mock-up of the car, on which
revisions and refinements can be worked out.
Because of the increasingly competitive and international nature of the industry,
manufacturers have employed various means to shorten the time from conception to
production to less than three years in many cases. This has been done at GM, for example,
by incorporating vehicle engineers, designers, manufacturing engineers, and marketing
managers into a single team responsible for the design, engineering, and marketing launch
of the new model. Automakers also involve component manufacturers in the design
process to eliminate costly time-consuming reengineering later. Often the component
maker is given full responsibility for the design and engineering of a part as well as for its
manufacture.
Economic and social significance:
The automotive industry has become a vital element in the economy of the industrialized
countries—motor vehicle production and sales are one of the major indexes of the state of
the economy in those countries. For such countries as the United Kingdom, Japan, France,
Italy, Sweden, Germany, and South Korea, motor vehicle exports are essential to the
maintenance of healthy international trade balances.
The effect of motor vehicle manufacturing on other industries is very great. Almost
one-fifth of American steel production and nearly three-fifths of its rubber output go to the
automotive industry, which is also the largest single consumer of machine tools. Moreover,
the special requirements of automotive mass production have had a profound influence on
the design and development of highly specialized machine tools and have stimulated
technological advances in petroleum refining, steelmaking, paint and plate-glass
manufacturing, and other industrial processes.
The indirect effects are also considerable through the many auto-related businesses, such as
motor freight operators and highway construction firms. In addition, truck transportation
has grown steadily throughout the world.
Highway development
Before the advent of the motor vehicle, roads in most parts of the world were generally
poor. The available methods of road transport were so costly and inefficient that, unless
there were special considerations such as military movements, it was not worthwhile to
maintain roads for other than local traffic. The general use of automobiles created a strong
demand for better highways. The first response was to provide for the improvement of
existing road networks. Experience subsequently demonstrated that roads for automobile
traffic needed to be differentiated functionally, depending on whether they were intended
for through traffic or local traffic. Main arteries are best designed as freeways (motorways,
autostrade, or Autobahnen)—i.e., divided highways with complete control of access and no
intersections at grade.
What is the challenge facing the industry?
Motor vehicle manufacturers and suppliers are facing a dramatic shortage of microchips
globally. This shortage was caused by a massive increase in demand for computers, mobile
phones and other consumer electronics during the COVID-19 pandemic that surpassed the
current supply of semiconductors.
The global chip shortage issue started in 2020 after many countries imposed complete
lockdown, hitting production and supply cycle. Supply, in particular, took a major hit
earlier this year after a storm halted production in the U.S. and a factory in Japan was
ravaged by fire – the affected factories in both countries together accounted for 50 per cent
of the semiconductor chips used in cars globally. Further, emergence of the Delta variant
and consequent COVID-19 breakouts in Southeast Asia increased the shortage of
semiconductor chips.
According to KPMG International’s 2021 annual survey of automotive executives, the
majority of executives (> 50 per cent) are concerned about a range of issues affecting
supply chain, including price volatility as well as availability of semiconductors and
commodities.
What is the impact?
In the year 2021, semiconductor chip shortage is expected to cost the global automotive
industry ~USD200 billion in revenue. These shortages have forced several original
equipment manufacturers (OEMs) to slow down production, with some even halting
production; thus, further extending the waiting period of popular, feature-rich, and
high-end passenger vehicle models – with delays as high as 12 months for some models.
India’s semiconductor demand currently stands at around USD24 billion and is expected to
reach USD100 billion by 2025. Sale of passenger vehicles comprising of SUVs and
high-end Sedans dipped significantly in the second quarter as compared to last year same
period.Major OEMs are cutting down productions as their current chip supplies have dried
up.
Automotive sales in India have recorded their lowest numbers in 10 years during the recent
festive season. Sales across segments declined by 18 per cent as compared to sales last year
during the same period. Vehicle registrations in India stood at 14 per cent lower y-o-y when
compared to Europe, where it was lower by 23% y-o-y. Additionally, major OEMs are
cutting down production as their current chip supplies have dried up.
However, on the positive side, used car sellers across markets, including India, are enjoying
a boom in demand. Prices of used cars rose by about 20 per cent globally on an annual basis
through August 2021.
How long will the chip shortage last?
With the pressures of rising demand, but supply remaining as-is, the global chip shortage
conundrum may continue till next year, with some improvements to be seen from mid-2022
onwards . Some large chip manufacturers in the U.S. and Europe are expanding their
manufacturing capacity, which may aid in the recovery of the automotive industry from
middle of next year.
Investments are also being made in Southeast Asia to curb the semiconductor shortage.
Some of the chip giants in Taiwan and South Korea are investing hundreds of millions of
dollars in capacity expansion over the next few years. With these global investments,
tracking the first quarter of FY22 will provide a good indicator on recovery timelines.
What are the corrective measures being taken by automotive companies?
Auto companies, constrained by the continuing semiconductor shortage, are taking various
countermeasures to improve vehicle supply and bring down the waiting period for
customers, thereby improving their vehicle sales. A few countermeasures adopted by
Indian and global OEMs to surmount this crisis include:

Halting or cutting down vehicle production

Removing infotainment systems, thus bringing down chip usage per vehicle and
offering cars with fewer chip-dependent features, which can be retrofitted later

Diverting chips to high-demand segments, such as SUVs, from mid-demand segments
such as sedans

Prioritising the production of premium passenger vehicles, which is seeing strong
growth

Some OEMs are also increasing the prices of their vehicles across models.
What is the way forward?
By 2025, chip shortages and trends such as electrification and autonomy, are expected to
drive up to 50 per cent of the top 10 automotive OEMs5 to design their own chips. It also
anticipated that the lessons learned from the microchip shortage will further drive
automakers to become more technologically savvy. This lack of visibility in the supply
chain has made automotive OEMs realise that they need to have greater control over their
semiconductor supply, and they will be taking steps to rectify that blind spot accordingly.
Indian Automobile Industry Analysis:
India ranked 1st in the world market in terms of unit production for 2 wheelers, 3 wheelers
and tractors.
Growing Demand:

Rising middle class income and a huge youth population will result in strong demand.

In January 2022, total production of passenger vehicles*, three-wheelers,
two-wheelers and quadricycles reached 1,860,809 units.
Opportunities:

India could be a leader in shared mobility by 2030, providing opportunities for electric
and autonomous vehicles.

Focus is shifting to electric vehicles to reduce emissions.

The electric vehicles industry is likely to create five crore jobs by 2030.
Rising Investment:

The automobile sector received cumulative equity FDI inflow of about US$ 30.78
billion between April 2000 and September 2021.

The Government of India expects automobile sector to attract US$ 8-10 billion in local
and foreign investments by 2023.
Policy Support:

In September 2021, the Indian government issued notification regarding a PLI scheme
for automobile and auto components worth Rs. 25,938 crore (US$ 3.49 billion).

Automotive Mission Plan 2016-26 is a mutual initiative by the Government of India
and Indian Automotive Industry to lay down the roadmap for development of the
industry.
The Indian auto industry is expected to record strong growth in 2022-23, post recovering
from effects of COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely
to witness positive sales in 2022-23.
1.2. Profile of the Organization:
Overview
The company develops vehicles and engines, and produces and sells passenger cars, trucks,
buses and motorcycles, light commercial vehicles, genuine parts, turbomachinery,
large-bore diesel engines, propulsion components, special gear units and testing systems. It
also provides leasing, banking and insurance, dealer and customer financing, and fleet
management and mobility services. Volkswagen markets products under brands such as
Volkswagen, Porsche, Bugatti, Lamborghini, Bentley, Audi, Ducati, Scania and Cupra. It
has operations in Europe, North America, South America, Asia Pacific and other regions.
The company has production facilities across the world. Volkswagen is headquartered in
Wolfsburg, Niedersachsen, Germany.
Type: Public
Revenue (2021): $295.8B (12.3% increase from 2020)
Founded: 1937
Website: volkswagenag.com
No of Employees: 668,294
Volkswagen - Business Model
Innovation-driven VW introduces new models on a regular basis. It adjusts to fit local
needs and focuses on the unique characteristics of each country (esp. in growth markets).
VW seeks to decrease costs through efficient manufacturing methods and economies of
scale while stressing the requirement for quality. "Offer beautiful, safe, and ecologically
sound cars that can compete in an increasingly competitive market and establish world
standards," says the organization.
VW secures control and exploits its scale by a degree of centralization, but its worldwide
presence allows it to accommodate for local specifics: R&D (including worldwide trend
reconnaissance and technology scouting) is headquartered in Germany, with subsidiary
research hubs in the United States, Japan, and China. Similarly, Group procurement buys
manufacturing supplies, services, and Capex in bulk to maximize negotiating power, but it
does so from 39 sites in 23 countries.
VW develops sustainable, long-term relationships with a range of suppliers and requires a
high level of quality and dedication to ensure steady and efficient flows of high-quality and
innovative sourced components.
The Group's multi-brand approach encourages internal competition, encourages switchers
to try new brands, and appeals to a wide range of individuals. Because of its strict
hierarchical brand design with sub-brands, internal cannibalism of sales is reduced.
Passenger (VW), premium (Audi), luxury (Porsche), and commercial business holding
firms are the four product categories in the corporation. The brands are translated into the
corporate hierarchy and are used to arrange the business in order to represent customer
preferences within the company.
Volkswagen - Future Plans:
Between 2020 and 2024, planned investments and development expenses in future sectors
such as hybridization, electric transportation, and digitization will reach over EUR 60
billion.
In Planning Round 68, the share of anticipated spend on future themes grew to over 40%,
up from around 30% in the previous Planning Round.
The Volkswagen Group continues to make significant investments in its future. Planning
Round 68 resulted in the creation of the investment plan for 2020 to 2024. The Group plans
to invest over EUR 60 billion in hybridization, electric mobility, and digitization over the
next five years. This amounted to around 40% of the company's property, plant, and
equipment investments, as well as all research and development costs, throughout the
planning period. It's a ten-percentage-point rise over the previous Planning Round for the
Group. The Group expects to invest about EUR 33 billion in electric vehicles alone.
1.3. Problems of the Organization
Economic volatility and greater competitiveness, as well as the costs of the current diesel
crisis and new, time-consuming exhaust testing in the European Union, are among the
issues.
According to chief financial officer Frank Witter, the cost of executing the Worldwide
Harmonized Light-Duty Test Procedure (WLTP) testing surpassed €1 billion (S$1.6
billion). Production increased by 13.5 percent in the second quarter, more than twice the
growth rate of deliveries, as the automaker prepared for the regulation change. Volkswagen
warned earlier this year that inventories might pile up ahead of the WLTP's implementation
on September 1st.
VW is grappling with political issues as well as internal transformation in the aftermath of
the three-year-old diesel scandal, which continues to haunt the industrial juggernaut.
The business incurred penalties of €1.64 billion, mostly due to a punishment imposed by
German authorities, bringing the total losses to almost €27.4 billion. Mr. Rupert Stadler,
the now-suspended chief of Audi's premium division, was arrested by Munich prosecutors
in June and is still detained.
As per a spokesperson, a subsequent partnership with Ford in light commercial vehicles
would allow the companies to pool development resources for electrification, lowering
one-time costs in areas such as battery-powered and self-driving cars, both of which are
gaining pace at the same time
"We cannot rest on our laurels because great challenges lie ahead of us in the coming
quarters," Mr Diess (chairman of the board of management of Volkswagen Group) said.
"Growing protectionism also poses major challenges for the globally integrated automotive
industry.".
5 years in, damages from the VW emissions cheating scandal are still rolling in:
Five years in, the Volkswagen emissions-cheating scandal is looking like one of the
costliest business scandals ever. Another former top Volkswagen executive went on trial
recently, just over five years after the scandal broke—and it’s still nowhere near over.
For anyone who doubts the destructive power of poor leadership and a diseased corporate
culture, the VW saga is a sobering lesson. Leadership and culture aren’t “soft” factors. In
this case, they represent lives ruined and hard-won billions of dollars lost.
Volkswagen admitted in September 2015 that it had installed “defeat devices” in millions
of its diesel-powered cars. Software detected when cars were being tested for compliance
with emissions rules; the software then adjusted the engines so that they passed. But in
normal use, the engines emitted far more pollution, including up to 40 times more nitrogen
oxide, which contributes to asthma, bronchitis, and emphysema.
It had all been going on for years. Many employees and executives—to this day no one
knows how many—knew exactly what they were doing and why. Here’s a summary of the
damage so far:
Damage to the business: Days after the scandal broke, VW booked a $7.3 billion charge to
earnings in anticipation of fines, litigation costs, and other payouts. That was optimistic. To
date the company has booked $35 billion of charges to earnings, offering little reason to
suppose that’s the final number.
Damage to shareholders: It’s impossible to calculate precisely, but in the scandal’s first two
months the company lost 46% of its value, or $42.5 billion. Today Germany’s DAX index
is about where it was in September 2015, and the S&P 500 is up 68%, but VW stock is still
35% below its pre-scandal price.
Damage to dealers: VW paid its U.S. dealers $1.2 billion to compensate them for losses,
but their total losses have not been calculated, and losses to thousands of dealerships
worldwide are unknown.
Damage to reputation: The value of the VW brand plunged after the scandal. The brand has
recovered some of its lost ground in BrandFinance’s annual ranking, but not all of it.
Pre-scandal it was the world’s 18th most valuable brand; five years later it’s 25th.
Damage to employees: VW announced in 2016 it would eliminate 30,000 jobs worldwide
as it overhauled operations in the wake of the scandal.
Damage to brand Germany: This is incalculable, but VW is Germany’s largest company,
and engineering is Germany’s pride, the heart of the country’s business brand. VW
couldn’t get its diesel engine emissions to be acceptably low, so it installed software to
conceal its failed engineering. Humiliating.
1.4. S.W.O.C. Analysis of the Organization:
Strengths:
1.The widest brand portfolio among all automotive companies
Company’s cars are sold under Volkswagen, Audi, Seat, Škoda, Bentley, Bugatti,
Lamborghini and Porsche brands. Ducati is Volkswagen’s motorcycle brand. The
company’s buses, heavy trucks and other commercial vehicles are sold under Scania, Man
and Volkswagen’ Commercial Vehicles brands.
No other Volkswagen’s rival has so many brands under its management. General Motors,
which is the 3rd largest automaker in the world, only has 10 different brands and Toyota
currently sells its vehicles only under 4 different brands.
2. New “TOGETHER – 2025” strategy:
In the wake of their emission scandal and the external market pressures Volkswagen has
introduced a new strategy plan that will focus on delivering key goals by 2025. The
company’s key objectives are:
Introduce 30 new electric vehicles by 2025. Volkswagen calls this objective as the ‘major
company’s electrification’. Up until now, the company was reluctant to engage in costly
race for electric vehicles.
Develop new competence in battery technology, digitalization and autonomous driving.
Increase research and development (R&D) spending to double-digit billion range.
Volkswagen’s further objectives outlined in the plan are to increase company’s efficiency
and profitability.
3. Diversification strategy:
Volkswagen’s revenue is much more spread across different brands, types of products and
geographic areas than its rivals’ revenues.
The company’s wide brand portfolio allows to target different consumer segments and
satisfy their diverse needs better.
Moreover, Volkswagen offers many types of automotive and maritime products and
financial services, which further diversify company’s sources of income.
Only 74.5% of Volkswagen’s income come from the main ‘Passengers Cars’ segment.[1]
‘Commercial Vehicles’, ‘Power Engineering’ and ‘Financial Services’ generate the rest
12.4%, 1.9% and 11.2% of the revenue, accordingly.
4. Synergy between brands:
Synergy between the brands is one of the key Volkswagen’s strengths. Many of
Volkswagen’s brands, including Škoda, SEAT and Volkswagen, or Bugatti, Lamborghini
and Porsche, share their R&D spending, build technology, access to different markets and
customer knowledge to increase sales and decrease costs. At the same time, they are able to
cater for different consumer groups.Synergy would not be possible between only a few
brands.
5. Joint ventures with local Chinese automakers:
China is the world’s largest automotive market share and the largest Volkswagen’s market
in terms of the number of vehicles sold. Volkswagen operates in China through two joint
ventures: SAIC Volkswagen and FAW-Volkswagen.
Through both partnerships, the company offers over 150 different models for the market
and sells over 3.5 million units a year. This allows Volkswagen to capture 14.6% market
share and to become the second largest automaker in China behind General Motors.
By establishing itself in China, Volkswagen will be able to compete in the world’s largest
automotive market better.
Weaknesses:
1. Negative publicity weakening the whole Volkswagen brand:
Volkswagen receives a lot of criticism and negative publicity for the following things:
‘Dieselgate’ scandal. In 2015, the company was found to install software code into its
diesel vehicles, which would control different emission levels during the vehicle testing in
a laboratory when compared to the real world emission levels. The company was
investigated and found guilty in many countries, which fined the company. The fines,
damages and other losses from the scandal totaled €16.2 billion for Volkswagen.
Vehicle recalls. Over the last few years, Volkswagen had to recalled millions of vehicles
worldwide and has received lots of criticism for that.
Negative publicity has hit hard Volkswagen Group. The company’s sales declined in 2015
and will likely decline in 2016. The company experience billions of losses, many current
and potential customers. Company’s brand image has been severely affected and it will
take lots of time to recover it.
Negative publicity is one of the worst weaknesses Volkswagen has brought upon itself.
2. The highest recall rate in the U.S. market:
Volkswagen’s massed produced vehicles have the highest recall rate in the U.S. market
among all the automakers. A study published by iSeeCars.com has revealed that
Volkswagen Group has a recall rate of 1805 vehicles per 1000 vehicles produced.
This means that Volkswagen Group has recalled each of its vehicle nearly twice. A high
recall rate results in additional costs, disappointed customers and negative publicity.
Volkswagen should implement better quality control procedures to minimize this
weakness.
3. Low market share in the U.S. automotive market:
United States is the second largest automotive market in the world with over 18 million
vehicles sold.[5] Moreover, it is the largest automotive market in the world in terms of
value. A high market share in the U.S. automotive market would guarantee huge earnings
as in the case of General Motors and Ford, both relying on the U.S. to generate 55.5% and
62.3% of their revenue, accordingly.[5]
At the moment Volkswagen’s share in the U.S. automotive market is at best weak. The
company sold less than 850,000 thousand vehicles in the U.S. and captured less than 5%
market share, despite being the largest automaker in the world.
4. Little expertise and no competence in making battery driven vehicles:
Volkswagen has long disregarded the demand for electric vehicles and made little efforts to
enter the market. The company’s first all-electric e-Golf has been introduced to the market
only in 2014. At that time, many e-cars have been in the market for a few years already. Up
until now, Volkswagen only has 2 all-electric vehicles. Volkswagen e-Golf range is only
about 83 miles, compared to Nissan Leaf’s 107 miles at nearly the same price.
In order for Volkswagen to fulfill its plans to introduce up to 30 all-electric vehicles by
2025, the company will have to acquire more patents, new skills and gain more expertise.
The company has pledged to invest billions in order to acquire the technology.
At the moment Volkswagen can barely compete with other electric cars’ automakers and is
far behind Tesla, the key rivals in the industry.
Opportunities:
1. Fuel prices are expected to rise in the near future:
Fuel prices have been low for the last few years and are expected to rise in the near future
due to the changes in the supply. Low fuel prices have increased the demand for large
vehicles such as pickup trucks and SUVs. Many companies, including General Motors,
Ford, Chrysler have benefited from the low fuel prices, because of their strong SUVs and
pickup trucks offerings.
On the other hand, Volkswagen didn’t invest much into growing its line of light trucks and
has opted to compete in the smaller vehicle range. The demand for small vehicles always
rises when the fuel prices are high.
Volkswagen could also push its plans to introduce the first competitive electric vehicle
earlier than 2020 and benefit for the growing demand for them.
2. Acquire skills and competences through acquisitions:
In order to fulfill its goals outlined in the new strategy plan, Volkswagen will have to
develop new competence in battery technology, digitalization and autonomous driving.
The fastest and least costly way to do that is by acquiring smaller startups, which have
already developed the skills and the technology needed for Volkswagen. Usually,
acquisitions are costly, but the current interest rates are the lowest in history, so capital can
be acquired cheaply.
3. Demand for autonomous vehicles:
Currently, nearly 33 companies are working on autonomous vehicles.[4] Few of them,
including Google, Ford and Tesla, are testing their autonomous vehicles on the roads and
none of them are selling these cars to the general public. It is hard to estimate the exact
demand or the market value (it is expected to be worth US$45 billion by 2025) for the
autonomous vehicles, but according to the efforts of all the major automakers, it seems that
autonomous vehicles is the next ‘big thing’ for the industry.
Volkswagen is in plans to introduce its autonomous vehicles by 2025. The company should
introduce its autonomous vehicles earlier to gain higher market share and increase sales.
4. Weakening euro exchange rate:
The majority of Volkswagen’s revenue come from Eurozone countries, where euro is the
only currency. Therefore, the changes in euro exchange rate have little effect on the
company’s revenue and profits. Nevertheless, exchange rates still affect exports to other
countries and this is where weak euro exchange rate against other currencies, benefits the
company.
Lower euro exchange rate against the U.S. dollar makes Volkswagen’s vehicles cheaper for
the U.S. citizens. The company could push its exports to the U.S. or other countries for as
long as the euro exchange rate is low against other currencies.
5. Focus on significantly improving sustainability policies to remedy damaged brand
reputation:
Volkswagen’s reputation as the environmentally friendly company has been severely
damaged by its emissions scandal. The company is no longer trusted as the business, which
protects the environment and is concerned about the communities around it.
The company identifies this as the key damage done by its emission issue.
If Volkswagen wants to regain the trust of its stakeholders, the company should increase its
efforts in sustainability significantly.
Challenges:
1. Intense competition:
Volkswagen is faced with an ever increased competition from the traditional automotive
companies, the new players and saturation of its main markets.
In China, one of the key company’s markets, new home based Chinese manufacturers are
competing by offering lower prices, but similar quality build vehicles.
New companies, such as Tesla with its electric cars will make it very hard for Volkswagen
to compete in the electric cars segment. In addition, Google, which tries to build
self-driving cars is also threatening the traditional automotive industry. The competition is
further fueled by the fact that the global automotive production capacity far exceeds the
demand. In 2015, there was an estimated global excess production capacity of 31 million
units.
2. Further fines and damages that will have to be paid:
Volkswagen’s emission scandal has already resulted in damaged brand reputation, lost
consumer confidence and €16.2 billion in damages and fines. This, though, is not the end of
it.
The company is still involved in many lawsuits all over the world, which seek to convict
Volkswagen for cheating on their emission data. The company will have to pay billions in
additional fines and damages, decreasing its profits for the next few years.
3. Increasing government regulations:
Many governments around the world are committed to reducing the greenhouse gas
emissions and are encouraging fuel efficiency initiatives. There is always a risk that such
environmental initiatives may increase production costs for the car manufacturers and that
these costs won’t be able to be recouped in such a highly competitive and price-sensitive
market.
1.5. Competitive Analysis:
Main Competitors of Volkswagen Automobiles:
Volkswagen is a major global car company which has several brands in its portfolio
including luxury brands like Audi. Even after the diesel scandal of 2015, VW has made a
strong return in 2016 and 17. There are several reasons behind the strong position of the
brand in the market including its strong financial position as well as brand image and a
large product portfolio. Apart from being a market leading brand, VW has a large product
portfolio that includes both passenger cars and luxury vehicles. Both Audi and Skoda are
popular brands that have achieved an excellent position in the market and have been highly
popular in the Asian markets.
The VW group includes two divisions – automotive and financial services. In 2017, it
achieved a new vehicles sales record even amid a highly competitive and challenging
situation. However, the issues arising from the diesel engine scandal continued to affect its
operating profits.
Had it not been for the strong market position of Volkswagen, the effects of the scandal
would have been stronger which cost the brand billions in fines. The car brand set a new
sales record of 10.8 Million vehicles in 2017 and achieved sales revenue of 230.7 Billion
Euros which was 6.2% higher than the previous year. In North America demand grew
higher in US and Canada driving the total sales figure to 1 million vehicles in the region.
The Asia Pacific region saw its sales rising to 4.5 million vehicles from 4.4 million vehicles
in the previous year. Apart from Audi and Skoda, VW’s portfolio also includes Bentley,
Porsche and Ducati brands. Its automotive division produces and sells passenger cars, light
commercial vehicles, trucks, buses and motorcycles, as well as genuine parts, large-bore
diesel engines, turbo-machinery, special gear units, propulsion components and testing
systems businesses.
1.Ford Motors:
Ford is among the most famous car brands of the world. The company was incorporated
in Delaware in 1919. Ford Motors came into formation through the acquisition of Ford
Motor Company that made and sold vehicles engineered by Henry Ford. Today, Ford
Motors Company is a global brand that designs, manufactures, markets, sells and services a
large range of vehicles including Cars, trucks, SUVs, electrical vehicles and Lincoln
Luxury vehicles. Apart from these, the brand also provides financial services through Ford
Motor Credit Company LLC. The company is consistently working to grab a leadership
position in mobility and electrical vehicles. Its main two business segments are automotive
business segment and financial business segment. The other business segments of Ford
Motor Company include Ford Smart Mobility LLC and Central Treasury Operations.
Toyota Motors:
Toyota is a major global vehicle brand and a tough competitor for Ford, Hyundai &
Volkswagen. The brand is a globally well known manufacturer of cars, SUVs and electrical
vehicles. Its focus is now on sustainable growth and the production of electrical vehicles
that have a very low impact on the environment. North America is the largest market for
Toyota, followed by Japan and Asia. In 2017, North America accounted for the highest of
Toyota’s sales at 32% of the total 8,970,860 total sales. Toyota has 364,445 employees. Its
number of manufacturing plants and companies around the world was 69 in 2017. In 2017,
its net revenue was 27,597.1 Billion Japanese yen which was 2.8% lower than the previous
year. The brand’s net income in 2017 equalled 1831.1 Billion Japanese yen. Toyota
brought the world’s first mass produced hybrid vehicle Toyota Prius in 1997. It plans to
invest more in the production of electrical vehicles and bring new and improved versions of
Prius. It has brought some luxury models to the market too including Camry which is now
available in a hybrid version.
General Motors:
General Motors was incorporated in 2009 as a Delaware Corporation. Its automotive
segment business is divided into two segments – GM North America and GM International.
GM North America includes the Buick, Cadillac, Chevrolet and GMC brands and caters to
the customers in North America. GM International on the other hand caters to the needs of
the customers outside North America through its Cadillac, Buick, Chevrolet, GMC and
Holden brands. In China, GM has equity ownership stakes in brands including Baojun,
Buick, Cadillac, Chevrolet, Jiefang and Wuling brands. In 2017 the brand sold around 9.6
Million vehicles where China and US remained the largest vehicle markets for GM
accounting for more than 4 million and more than 3 million vehicles respectively.
FCA:
Fiat Chrysler Automobiles (FCA) is a global automotive brand that designs, engineers,
manufactures, distributes and sells vehicles, components and production systems
worldwide through 159 manufacturing facilities and 87 research and development centers.
FCA operates in over 40 countries and sells its vehicles directly or through distributors and
dealers in over 140 countries. It designs, engineers, manufactures, distributes and sells
vehicles for the mass-market under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat
Professional, Jeep, Lancia and Ram brands and the SRT performance vehicle designation.
It also designs, engineers, manufactures, distributes and sells luxury vehicles under the
Maserati brand. North America and specifically US is the largest market for FCA where it
sells the highest number of vehicles. In 2017, it sold total 2.4 million vehicles in North
America and in US alone it sold around 2 million vehicles.
Nissan Motors:
Nissan is also a major global car brand. North America and China are its biggest markets.
The brand achieved sales of 5.6 million vehicles in 2016 and expected to achieve the sales
of 5.8 million vehicles in 2017. In 2016, its net sales in North America totalled 2.1 million
vehicles whereas that in China reached 1.35 million vehicles. In 2016, its net revenue
declined by 3.9% to 11.72 trillion Yen. Some of the SUVs made by Nissan have bene
highly popular in the Asian markets. The brand is also working on releasing electric cars
and on making its foray into automated driving.
BMW:
BMW is another major global brand of luxury cars and motorcycles that saw its sales and
market share climbing in 2017. It owns BMW, Mini and Rolls Royce brands. 2017 was an
year of growth for the brand and China was the main driver of growth. Its core brand BMW
sold more than 2 million vehicles in 2017. The automotive market has grown highly
competitive and despite that BMW managed to grow its sales by around 4 percent to 2.46
million vehicles overall. In Mainland China, the total deliveries made by BMW rose past
590,000 whereas in Americas and US there was a slight decline in overall sales. In 2017,
it achieved an important milestone of having sold its 100,000th electrical vehicle and is
planning to move faster ahead in the direction of electrification. Its continuously improving
position in the Asian markets can be a challenge for the other vehicle brands.
Mercedes:
Mercedez is a well known brand of luxury cars and is owned by Daimler. Apart from
Mercedez cars and vans, Daimler also makes trucks and buses. Mercedez is seeing growing
sales in the booming Asian markets. Its sales in China have tripled within just last four
years. In 2017, Daimler sold nearly 2.4 million Mercedez Benz cars. Growing sales of
Mercedez Benz cars is going to be a challenge for its direct and indirect competitors. The
Revenue from the Mercedes Benz cars rose from 89.3 Billion Euros to 94.7 Billion Euros.
Unit sales increased from 2.2 Billion to 2.4 Billion.
Chapter 2 Conceptual Discussion (Theoretical Background)
Deloitte Annual Auto Report:
From September through October 2021, Deloitte surveyed more than
26,000 consumers in 25 countries to explore opinions regarding a variety of
critical issues impacting the automotive sector, including the development
of advanced technologies. The overall goal of this annual study is to answer
important questions that can help companies prioritize and better position
their business strategies and investments.
2010: Overall value ranked as the primary factor when evaluating brands
2011: “Cockpit technology” and the shopping experience–led differentiato
2012: Interest in hybrids driven by cost and convenience, while interest in connectivity
centers on safety
2014: Shared mobility emerges as an alternative to owning a vehicle
2015: Interest in full autonomy grows, but consumers want a track record of safety
2016: Consumers in many global markets continue to move away from internal combustion
engines (ICE)
2017: Consumers “pump the brakes” on interest in autonomous vehicles
2018: Questions remain regarding consumers’ willingness to pay for advanced
technologies
2019: Online sales gaining traction, but majority of consumers still want in-person
purchase experience
Willingness to pay for advanced tech remains limited:
A majority of consumers are unwilling to pay more for advanced technologies in most
global markets as they have been trained to expect new vehicle features as a cost of doing
business for brands looking to
differentiate themselves from their competitors.
Interest in EVs driven by lower running costs and better experience:
Consumer interest in electrified vehicles (EVs) centers on the perception of lower fuel costs,
environmental consciousness, and a better driving experience. However, driving range and
lack of available charging infrastructure remain barriers to adoption.
In-person purchase experience still preferred by many:
Most consumers would still prefer to purchase a vehicle at an authorized dealership.
However, a perception of increased convenience and ease of use will likely support
continued growth of virtual purchase processes.
Personal vehicles continue as the preferred mode of transportation:
Shared mobility services like ride-hailing and car sharing have been slow to return to their
prepandemic pace of growth as people prefer using personal vehicles to satisfy their
transportation requirements.
ETAUTO.com ,March 02, 2022:
Volkswagen India records 84% sales growth in February 2022 with 4028 units:
According to the automaker, the positive momentum will further be heightened with the
launch of the Volkswagen Virtus which is scheduled for its world premiere on 8 March
2022. With the Volkswagen Virtus, the brand is set to invigorate the premium midsize
sedan segment, it added.
Recently launched Volkswagen Virtus
Volkswagen Passenger Cars India has sold 4,028 units in February 2022 witnessing its
strongest performance in the last four years. The brand has recorded strong sales
performance with a growth of 84% in February 2022 as compared to February 2021 driven
primarily by Volkswagen Taigun, the company statement said.
The Volkswagen Group in India is represented by five brands: SKODA, Volkswagen, Audi,
Porsche and Lamborghini.
According to the automaker, the positive momentum will further be heightened with the
launch of the Volkswagen Virtus which is scheduled for its world premiere on 8 March
2022. With the Volkswagen Virtus, the brand is set to invigorate the premium midsize
sedan segment, it added.
Ashish Gupta, Brand Director, Volkswagen Passenger Cars India said, “The strong
performance witnessed in Feb’22 is a testament to the right product strategy developed for
the Indian market. It is the love and endorsement by customers for Volkswagen products
such as the Taigun that has driven this strong result. We are confident the
soon-to-be-unveiled Volkswagen Virtus will receive a similar appreciation and acceptance
by our customers.”
BLOOMBERG June 14th 2022:
Here’s why Bloomberg thinks Volkswagen’s EV sales will overtake Tesla’s by 2024:
According to a comprehensive report published this morning by research firm Bloomberg
Intelligence, Tesla will hold its global crown for EV sales for the next 18 months but will
then be usurped by Volkswagen electric vehicles. The full BEV outlook report predicts that
many legacy automakers will lag in sales through 2025, but Volkswagen is on track to
overtake Tesla’s production volume by 2024.
Both Volkswagen and Tesla are major names in autos, so we will spare you their history
lessons. While the latter has been all-electric since day one, the former has made more
recent efforts to embrace BEVs and has done so much more aggressively that other legacy
automakers.
Perhaps that emissions scandal put a little chip on Volkswagen’s shoulder to motivate a
shift in its public image – either way, it’s working. Last fall, we reported Volkswagen was
expanding EV sales and deliveries at a staggering pace, seeing YOY growth well over
100%.
This trend has continued into 2022 as BEV demand grows alongside the number of VW
models available. While Volkswagen is still staring at Tesla’s back, the German automaker
has been gaining ground.
Tesla on the other hand, continues its very public role as the darling of EV adoption,
donning a crown decorated with badges like a $686 billion market cap and hundreds of
thousands of units produced each quarter. With new Gigafactories in Berlin and Austin
ramping up, Tesla has no intention of slowing down, despite multiple setbacks.
In light of Tesla’s growing efforts, Bloomberg Intelligence believes the American
automaker’s days as the top dog in BEV sales are numbered and Volkswagen is next in
line.