VW: Case Study Questions
 The
NAFTA challenge
 Reconfiguration of supply chain
strategy
 Become competitive in U.S. market
1. Shift in IPE
 How
does NAFTA challenge VW to
reconfigure their global/North American
supply network?
 Other factors?
Key Issues
Location of Value-creating Activities and
Linkages (flow) between VW Units
U.S.
??
Mexico
??
Germany
??
NAFTA and Volkswagen
Current Configuration
U.S.
Germany
• Marketing
• Distribution
• High-end
productionb
• Suppliers
Mexico
• Low-end
productiona
• Some supply
a
Jetta, Beetle
b
Passat, Sharan, EuroVan, etc.
NAFTA: Key Issues
 Regional
content
 Over-reliance on German imports
 Lack of US or Mexico supply network
 Increased competition in Mexico and US
 Instability of Peso
 Labor instability
Changes in Currency
DM per $
1991
Peso per $
2000
1991
Peso per DM
1991
2000
2000
2. Supply Chain Management:
Location and Flow of Value
 How
should VW relocate and reconfigure
its key value-adding activities, such as
production, design, marketing, supply
chain, financial management, etc.?
 What is your recommended ‘flow’ for auto
components, finished vehicles, cash, etc.?
Location and Flow:
What do YOU recommend?
U.S.
??
Mexico
??
Germany
??
Location and Flow:
Strong Dollar vs. Peso and DM
U.S.
Germany
Sales
Components
Profit
Mexico
Mfg.
•
•
•
•
Lower labor costs
High component costs
Lower profits
Low transfer price
Location and Flow:
Strong Dollar vs. Peso and DM
U.S.
Sales
Mfg.
Components
Germany
Profit
Mexico
• Constant labor costs
• Const. component costs
• Profits depend on P-C margin
Location and Flow:
Strong Dollar vs. Peso and DM
U.S.
Germany
Sales
Profit
Mexico
Mfg.
Components
•
•
•
•
Lower labor costs
Low component costs
Highest profits
Low transfer price
Location and Flow:
Weak Dollar vs. Peso and DM
U.S.
Germany
Sales
Components
Profit
Mexico
Mfg.
•
•
•
•
Medium labor costs
Low component costs
Medium profits
High transfer price
3. Other Competition-Enhancing
Actions
 Can
VW compete in the U.S. market from
outside the U.S.?
 What new strategies should VW develop?
What other strategies
should VW try?
 New
models
 Consolidate components & platforms
 Marketing
 HR policies
 Other stuff?
New Products
Product Evolution
Missed Opportunities?
Design and Production Convergence
Golf
Beetle
Standard Components
and/or
Single Platform
Jetta
VW Changes
 VW
Mexico makes $1.0 bil investment: 1990-95
 Piech as new CEO January 1993
– Reversed Hahn’s growth strategy
– Cut worldwide investment by 1/3 and German
workforce by 10%
 Jose
Lopez cutting supply costs
– Reducing VW suppliers from 1,000 to under 100
– VW suppliers shifting production to low wage
countries (including Mexico)
 Considering
US plant if 10-15% growth achieved
VW’s U.S. Marketing Efforts
 Cross-promotion
of Irish folk/new age band
“Clannad” (1993; music in commercials)
 $45 million U.S. advertising campaign focuses on
popularity of Golf /Jetta in Europe (1993)
 J.D. Power ranks Golf as “best in class” (1995)
 Pushes “test drive outings” vs. rivals’ cars (1995)
 Major focus group effort vs. rivals’ cars (1995)
 “Drivers Wanted” campaign signals VW’s focus
on 17-30 age group; $45 million (1995)
 “Duh, Duh Duh” … $70 mil ad campaign (1997)
The VW Family
 Audi
 Bentley
 Bugatti
 Rolls-Royce
 Seat
 Skoda
 Volkswagen
Mexico Policy Efforts
 Mexican
government lures German
FDI in wake of German reunification
 Strike at Puebla, August 1992
 Pact for Stability, Competitiveness and
Employment limits union’s ability to
gain wage raises to 9.9%
VW’s North American Sales
Number of Units
700000
600000
500000
400000
300000
200000
100000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000