Volkswagen AG

Situation Analysis
EBA 605, Dr. J. Coleman
Saturday, March 11, 2006
Team Maxxim
presents
Project Goals & Objectives
Highlight trends in the automobile industry

Analyze and critique Volkswagen recent
decisions

Discuss where and why VW went wrong

Offer potential solutions as an objective
outsider

Volkswagen AG
Presentation Overview
Company Overview
Brand Portfolio
Current Situation
The VW Customer
Competitive Analysis
Financials
SWOT Analysis
Questions

Volkswagen AG
Volkswagen AG
Corporate Overview
HQ: Wolfsburg, Germany
US Operations: Auburn Hills, MI
Europes #1 automobile manufacturer
Traditional Brands: Jetta, Passat, Touareg,
Phaeton, Fox and Audi
International Brands: SEAT and SKODA
Annual production: 5M vehicles
Annual sales: $121,345/ 10.9 YOY growth
Employees: 342,502 worldwide

Volkswagen AG
Key Milestones
1930s
Factory opened in
Wolfsburg, Germany

1940s
Production of first
Volkswagen
Company turned
over to German
government
1950s
VW begin building
foreign plants
Launched Beetle in
US market
Developed Microbus
1960s
Sold stock to the
German public
Purchased Auto
Union (AUDI)
US Beetle sales took
off
1970s
Beetle discontinued
in every country except
Mexico

1980s
Begin car venture in
China
Purchased SEAT
Formed Autolatin in
Brazil
1990s
Built Chinas largest
auto plant
Launched Passat
Acquires Rolls-Royce
and Bugatti
Launched New
Beetle in US
2000s
Spent 3.1B to
modernize factories
The final Beetle
ended a 70-year run
Invested 1.7B in
China (Asia/Pacific)
Bernd Pischetsrieder
joined company
Volkswagen AG
Volkswagen Group Brand Portfolio
emotion
functionality
sophistication
zones of
low demand

zones of
low demand

Volkswagen AG
Current Situation Project Basis
Porsche increase stake in VW
Recently hired Wolfgang Bernhard
to head VW group
Launched Moonraker project
Loosing share in China market
Pulled out US luxury market
VW to cut 20,000 jobs
Ferdinand Piech steps down as
Chairman***
Triple threat:
high costs
inflated sticker price
questionable quality














HIGHS
LOWS
*** Some may say this is a high given that he engaged VW in
High risk, high reward strategies
Volkswagen AG
The VW Customer
Positioning Statement:
For the cost conscience buyer, Volkswagen
offers reliability and value.

Value Proposition:
Target Market: Cost conscience buyer (parents,
females, young adults)
Benefits offered: German technology
Relative price: Affordable, reliable


Volkswagen AG
The VW Customer


Young
Female
Age 19-32
College-Educated
Parents
Aspirational value
Global Reach
USA, France
Spain, UK
Germany
Italy, China

Value conscience
Volkswagen AG
Volkswagen Global Marketing Mix
2
3
4
Brand portfolio
Volkswagen
Audi
Seat
koda
Bugatti
Bentley
Lamborghini
Commercial vehicles
1
Unique brand identity for
each nameplate
Complete product range
Mostly standardized products
with minor adaptations


Setting prices with regard to
competitors
Price discrimination across
regions
No price competition in
emerging markets
Strict cost controlling
Glocalized communication
Emphasis on the European
market
Brand advertising
Emotionalization
Development of
distribution partners
Separated
distribution channels
for each brand
International
standardization of
dealers
Global
Marketing Mix
VW Competitive Analysis
Volkswagen AG
Golf
Jetta
New Beetle
Passat
Phaeton
Touareg
*Numbers based on 2004 Marke tshare
1.5
7.6
13
35.5
23.9
Volkswagen Toyota DiamlerChrysler General Motors Ford
Volkswagen AG
Operating Margin
3.38
5.77
5.16
7.44
4.94
6.01
5.56
1.92
8.49
6.22
6.71
4.94
1.73
9.64
3.25
6.81
6.22
0
5
10
15
20
25
30
2000 2001 2002 2003 2004
Volkswagen Toyota DiamlerChrysler General Motors Ford
2.28
3.1 2.8
4.08
3.15
0.93
5.56
1.18
5.88
0.33
2.06
0.03
0.72
6.72
1.74
1.45
-0.6
-2
0
2
4
6
8
10
12
14
16
18
2000 2001 2002 2003 2004
Volkswagen Toyota DiamlerChrysler General Motors Ford
Net Profits
Volkswagen AG
5 Year Sales Trend (in billions)
163,331
4,032
88,540
2,915
86,948
2,984
87,253
1,095
88,963
667
2000 2001 2002 2003 2004
5-Year Sales Trend
Sales increased by 4.9% in 2004
Shareholders net profits
Substantial decrease 00 to 01

Volkswagen AG
Return on Equity Return on Assets
18.35
12.19
10.54
4.58
3
2.53
2.8
2.38
0.94
0.56
0
5
10
15
20
2000 2001 2002 2003 2004
ROE ROA
5-year period
Reduction in ROE & ROA
Volkswagen AG
SWOT ANALYSIS


STRENGTHS
Market Leaders
High Brand Equity
Focus on Innovation
OPPORTUNITIES
New market to explore (India)
Auto sales up 30%
2010 India will have 36x more cars
Increase disposable income
Launch new models
WEAKNESS
Slow revenue growth
Low presence in SUV market
Rising admin expenses
THREATS
Fierce competition
Increasing steel prices
Decline car sales in U.S.
Low consumer spending in Germany
Volkswagen AG
Challenges and Risks*
Costs Revenue and
Performance
f
u
t
u
r
e

c
u
r
r
e
n
t

Increasing product costs
High investments
Further price pressures
Chinese operations
US operations-luxury market
$/ Exchange rates
Price pressure
Weak economy

Depreciation
Legislation
Investments in future markets
Raw material prices
Labor costs

*Volkswagen AG 2005 Strategy Meeting
Volkswagen AG




Thank you!
References
Culp, Eric, VW in Fresh Trouble as it Withdraws US Model, Knight
Ridder Tribune Business News, 11/05, pg 1
Flint, Jerry, The Fast and the Furious, www.forbesauto.com, 01/06
Fondon, Daren, A Pitch to the Rich, Times Online, 11/03
Hoovers Company Information, Hoovers, Inc., 2006
Landler, Mark, Volkswagen Chairman Step Down, New York Times,
01/06
Landler, Mark, Porsche to Build a 20% Stake in VW, Detroit News
Auto Insider/New York Times News Service, 09/05
Power, Stephen, Once Hot Volkswagen Attempts to Reverse U.S. Sales
Decline, Wallstreet Journal (Eastern Edition), New York, 09/05, pg A3
Rancanelli, Vito J., Turn Around Ahead at Volkswagen, Barrons, 05/05,
Vol. 85, Issue 20, pg 26
Thomas, Chad & Archey, Sheenagh, Porsche Buys 20% in the VWs
Share to Prevent Takeover, Bloomberg News,
http://quote.bloomberg.com/apps/news, 09/205


Volkswagen AG
Volkswagen AG
References
Brodrick, Sean. Set Your Sights On Asias Sleeping Elephant.
http://www.escapeartist.com/efam/70/Invest_In_India.html
www.datamonitor.com