Case Study on Volkswagen AG

Volkswagen AG, known internationally as the Volkswagen Group, is a German public multinational conglomerate manufacturer of passenger and commercial vehicles, motorcycles, engines and turbomachinery, headquartered in Wolfsburg, Germany. Since the late 2000s Volkswagen became a publicly-traded family business owned by Porsche SE, which in turn is half-owned but fully owned by the Austrian-German Porsche and Piëch family. The company also offers related services, including financing, leasing, and fleet management. In 2016, it was the world’s largest automaker by sales, and keeping this title in 2017, 2018, and 2019, selling 10.9 million vehicles and was the largest automaker by revenue in 2022. It has maintained the largest market share in Europe for over two decades.

While most automobile companies talk about bankruptcy, merger, collapse, and liquidation, Volkswagen AG is posting solid earnings. Volkswagen (VW) managed the global economic recession well by focusing on emerging markets such as China and Brazil and continually reducing costs. VW is the leading auto firm in China, not Toyota or Nissan. VW’s market share in Western Europe rose to 20 percent in 2009 from 17.9 percent a year ago. While shrinking demand for new cars in major markets and high raw-material costs, and unfavorable exchange rates have reduced earnings of most European automakers, VW anticipated these conditions through excellent strategic planning and continues to take market share from rival firms worldwide.

The German truck maker and engineering company MAN AG is VW’s largest single shareholder at 30 percent, and its business too has been good. MAN’s third quarter of 2008 saw profit jump 34 percent, lifted by strong sales of trucks, diesel engines, and turbo machinery. VW is currently spending $1 billion to build a new plant in Chattanooga, Tennessee, for the production of a midsize sedan in 2011 with an initial capacity of 150,000 cars annually. VW’s plans for 2018 include increasing its U.S. market share from 2 percent to 6 percent by selling 800,000 vehicles annually in the United States. By 2018, VW also plans to export 125,000 vehicles from North America to Europe. VW is increasing is 2009 U.S. marketing budget by 15 percent in its Audi AG luxury division. The Audi ads even ran during the 2009 Super Bowl. For all of 2008, VW’s net profit rose 15 percent to 4.75 billion euros and revenues rose 4.5 percent to 114 billion. VW expects flat or even slight declines in 2009 but some of its competitors are incurring billion dollar losses.

VW has cars named for climate patterns, insects, and small mammals. Along with the New Beetle, VW’s annual production of 6 million cars, trucks, and vans includes such models such as Passat (trade wind), Jetta (jet stream), Rabbit, and Fox. VW also owns several luxury carmakers, including AUDI, Lamborghini, Bentley, and Bugatti. Other VW makes include SEAT (family cars, Spain) and SKODA (family cars, the Czech Republic). VW operates plants in Africa, the Americas, Asia/Pacific, and Europe. VW holds 68 percent of the voting rights in Swedish truck maker Scania and about 30 percent of MAN AG. VW also offers consumer financing. VW is acquiring Porsche Automobile Holding SE and merging their auto brands into VW. Based in Stuttgart, Germany, Porsche already owns 51 percent of VW but has weakened in 2009 after taking on $12 billion in new debt.

VW is in talks with China’s BYD Co. to build hybrid and electric vehicles powered by lithium batteries. Based in Shenzhen, BYD will supply VW with the battery technology. This will be the first automotive partner for BYD, which is one of the world’s largest suppliers of cell phone batteries. VW is building a new assembly plant in Indonesia for $47 million about 1 hour east of Jakarta, the capital. This plant will assemble the Touran and employ about 3,000 persons. Toyota already has a manufacturing plant in Indonesia and dominates that market. Currently many VW vehicles are imported into Indonesia, thus being subject to a 200 percent tariff. VW reported 2nd quarter 2009 earnings of $397 million; the Audi division was the biggest contributor to the gains.

Required:

1. Discuss how the social, legal, economic, political, and technological environments may impact Volkswagen (10 marks)

2. Discuss how Porter’s Business Strategies (if any) may be applied to Volkswagen.
(10 marks)

3. Explain how Volkswagen used the three (3) alternative strategies of forward integration, market penetration, and diversification to improve on it organization. (15 marks)

4. Discuss two (2) other strategies the company could implement to further benefit the organization. (10 marks)

5. There are various means of achieving strategies among companies. VW for example have plans for future expansion; Briefly the best strategies VW could use to achieve its objective of plant expansion. (5 marks)

Total 50 marks