Cody Link

May 4, 2014
MKT 359 Kuehl

Midterm SWOT Analysis:
Volkswagen Automobile Group
Strengths:
Strong 2014 First Quarter Sales: The Volkswagen Group saw strong growth during the
first quarter with increase in sales revenue of more than 2.7% (Volkswagen 1). Additionally,
despite a still unsure global economy, operating profits have increased and the company has
maintained a high liquidity at 17.7 billion dollars globally (5). Much of this success furthers
the intensity to meet the 2018 sales goal, in units, for Volkswagen and Audi brands of 1
million cars per year. "The Volkswagen Group has established a strong position in recent
yearswe must now continue improving our position and maintain our successful course as
part of the systematic implementation of our Strategy 2018", said Prof. Dr. Martin
Winterkorn, Chairman of the Board of Management of Volkswagen (2). Even with some of
the groups brands experiencing lower operating profits, namely Audi, as they have invested
heavily in technological innovations, brands like Bentley have had huge success with
operating profit jumps of 65.7% year-over-year (11).
TDI (Turbo-direct injection) Clean Diesel Technology: Automobile buyers are becoming
more and more concerned with fuel economy as prices for gasoline steadily rise. Most will
opt for hybrid vehicles as being the preferred alternative but Volkswagen Group has focused
its alternative fuel vehicles on diesel propulsion across all brands. VW and Audi were the
primary innovators in clean diesel technology and have commanded the market ever since.
TDI Clean Diesel vehicles use ultra-low-sulfur diesel which produces 98.5% better
environmental emissions than the diesel predecessors of the 1970s (Hewitt 4). The reduction
in toxic exhaust emissions reduces excessive amounts of sulfur to be released into the air
resulting in acid rain (4). Despite being on the leading edge of automotive diesel
technologies, many other import competitors have begun investing in diesel; Mercedes-Benz
has even gone so far as creating a system which filters the exhaust from its diesel offering,
the Blu-Tech, which mutes the often aggressive smell of diesel (5). Other accolades for the
TDI, and diesel technology at large include: better combustion, reduced engine noise, and
improved vehicular longevity (6, 7, 8).
Expanding brand through diversification: Dating back to 1934, Volkswagen has a
longstanding history as being the peoples car (VW 2). The Volkswagen group has
changed immensely since then and has broadened its portfolio, just recently to include
Porsche, a luxury sports car manufacturer also located in Germany. The purchase of Porsche,
which occurred in July 2012, cost the Peoples Car maker a reported 4.46 billion euros -
accounting for 50.1% of the Porsche brand Volkswagen Group didnt already own (3).
Volkswagen Group has further expanded its product offerings by purchasing Ducati, a
motorcycle manufacturer and has rumored to show interest in the commercial truck
manufacturer, Navistar (4). The acquisition of Navistar would add to the breadth of its
commercial division as it has already purchased Scania and MAN (4). The strategy has
proven to be successful by all initial accounts as Volkswagen Group saw record breaking
sales globally 2011. Across all of its markets and brands, Volkswagen Group, with the
exception of Seat, sold 8.5 million units in 2011 (6). As a result, Volkswagen and her sister
brands dethroned GM and Toyota as being the worlds leading volume automaker and has
chiseled away at the global sales goal of 11 million vehicles by 2018 (4).
Weakness:
The MQB Modular Platform: In an effort to reach its lofty goal of one million global
sales per year, Volkswagen Group has moved towards a universal frame platform which
serves as the structure for such vehicles as the VW Golf, Audi A3, Skoda Octavia and Seat
Leon (8). Cost efficient, yes. But, a ripple in production quality could expose the automaker
to devastating recalls and large expenses to fix affected vehicles. If a single part has a
problem, and that part is in many different models, a recall affects many more vehicles
claims Lawrence Frost of Reuters. In the past, sister company Audi has utilized light-weight
materials like aluminum to shed pounds off of curb weight of their vehicles but not partnered
to utilize a single frame platform. Despite possible future recall potential, Volkswagen group
plans to modify and expand the MQB platform to its ultra-luxury offerings, many of the
group's ultra-luxury and performance brands will employ a third component set called MSB,
designed for premium rear- and all-wheel-drive vehicles such as the Porsche 911, the Bentley
Continental and the Lamborghini Gallardo (Frost 18).
Hasty globalization: In addition to its efforts in America and the one million vehicles
sales per year goal it set for 2018, VW as a whole has invested large amounts of money on
emerging markets, notably in China. China accounts for a large percentage of the companys
global sales, specifically 30% annually (Frost). Future investment in the Chinese market is
set at an estimate 13 billion dollars which some say contradicts VWs mantra for even
disbursement of funding. Compounding the problem, a larger, more focused investment in
China could leave other quickly growing markets like the United States and Russia under-
funded and as a result, under-developed (Frost).
Misconceptions about Clean Diesel: One aspect about diesel technology,
something VW and its sister brands are highly invest in, is the stigma that follows it. A once
denounced propulsion method, diesel gets a bad rap needlessly. Most often people assume
that diesel engines return lower fuel economy numbers not true. In most cases, diesel
powered vehicles return fuel economy numbers akin to that of a gasoline-hybrid vehicle
because of its economical use of power in lower gears (Valdes-Dapena 10). Other criticize
the noise emitted by diesel vehicles; todays clean diesel cars utilize technology that gently
forces fuel into the cylinder even as the piston moves up and down, ultimately reducing noise
and vibration (11). A constant flow of small fuel injections powers the cylinders and
maintains a quieter driving experience without the tradition clatter from a 1970s diesel
offering,
Opportunities:
Continuing to diversify vehicular portfolio: Despite having an already all-
encompassing vehicle portfolio, Volkswagen has decided to broaden its spectrum by
introducing a 7-seat SUV to the American market. "We want many more American drivers to
feel at home with our group brands and are working to achieve that with 100 percent
commitment and plenty of passion," CEO Martin Winterkorn said (Nelson 2). To do so, VW
has pledged seven billion dollars to the American market; disbursement of funds has not been
disclosed entirely but currently Chattanooga is favored over Puebla, Mexico where larger
volume products like Golf, Jetta, and Beetle are produced (3).This comes on the heels of a
multi-billion investment in the Chattanooga plant which produces the Passat and employed
thousands in the state of Tennessee. Production of the 7-seater is also yet to be decided but
rumors have suggested it will be made alongside the Passat in Tennessee. Additionally, the
Crossblue, VWs 7-seat offering, will position itself above the existing Touareg (mid-sized)
that VW offers in gasoline, diesel and hybrid variations. The Crossblue will fill a void where
the Touareg lacks as the latter is priced 11% higher than its closest competitor, the Lexus RX
and cannot compare to its larger cousin, the Lexus GX (10). Continuing its quest for one
million annual sales, Volkswagen will also introduce the reengineered Phaeton luxury sedan
which was considered a flop during its introduction in the mid-2000s (7). Despite, slowing
sales among the namesake brand, Volkswagen Group has seen large growth in luxury
offerings Audi and newly acquired Porsche with annual deliveries up 14% year-over-year.
Catering to American Market: In hopes of attaining its one million unit sales goal
by 2018, Volkswagen Group has expanded production capacity globally especially in China
and the United States. The domestic plant, located in Chattanooga, TN, will account for
800,000 Passat mid-sized sedans which were designed with the American consumer in mind
(Choi 2). The company returned its best sales year to date since the record set in 1973 with
438,133 units in 2012 but will still need a bump of some 45% to reach the 800,00 domestic
product goal and large one million unit sales goal (2). A consistent plan to market the volume
leader for the Volkswagen brand will need to adopt for both new and used cars as the global
market will be flooded with the newly redesigned sedan.
Threats:
Competition: The competition within the automobile industry is fierce, regardless of the
type of vehicle you wish to sell. Volkswagen Group of America competes in many different
vehicle classes ranging from economy to luxury which forces them to continually maintain
a competitive edge and strive forward with technical innovation across all of its brand
offerings. In North America, Volkswagen AG competes across a few different buying
segments of the industry. Volkswagen, the namesake of the automobile group and largest
volume automaker in the group faces steep competition from Japanese companies like
Honda, Toyota and others, the likes of which include: Hyundai, Kia, and Ford. The second
and smaller segment it competes in is the import high group, which is more prestigious and
offers products like Audi, Lamborghini Bentley and Porsche. The aforementioned
automobile manufactures offer less sales per month but high per unit margins and often more
notoriety due to perceived value and presence amongst higher income consumers and public
figures. In a market where consumers are becoming savvier to decision makers like price,
style and fuel economy, Volkswagen AG must be on the forefront of technological and
stylistic design in order to forward its market share and its loyal customer base.
Domestic Union Litigation: Upon opening its first domestic manufacturing facility in
more than two decades here in the United States, Volkswagen faced large amounts of
backlash for its supposed involvement, direct or otherwise, to block unionization at the
Chattanooga, TN plant which produces the popular Passat and the yet unnamed 7-seat
crossover for the largely American consumer. Union leaders claimed that lawmakers from
the Tennessee legislature made incentive threats the automaker to keep its employees from
unionizing. These are not people who made idle threatsThese are people who had the
ability to take away the lifeline for that company in that state, said Richard Trumka,
President of the American Federation of Labor and Congress of Industrial Organizations
(Covert 3). State senator Bill Watson (R), claims it has been widely reported that
Volkswagen has promoted a campaign that has been unfair, unbalanced and, quite frankly,
un-American in the traditions of American labor campaigns" (Snavely 5). Watson continues
by asserting that the only way the automobile manufacture will receive more incentive
investments by the state of Tennessee is if they choose to unionize with the UAW, United
Automobile Association (5). This is a very large threat to Volkswagen Group because it
could jeopardize further investment in production in America and move towards expansion at
its plants in Mexico and in Europe (6). If an agreement cannot be reached, Tennessee could
lose out on a seven billion dollar investment Volkswagen intends to make in America to
reach its 2018 sales goal of 1 million vehicles during one year for both the Volkswagen and
Audi brands (4). Volkswagen wishes to remain as impartial as possible during the
contentious period by stating that outside political groups won't divert us from the work at
hand: innovating, creating jobs, growing and producing great automobiles" (7).
Changes in Management: In response to lackluster sales in America, Volkswagen Group
decided to shake up management in Volkswagens American branch. Jonathon Browning
was replaced by Michael Horn in December 2013 as a means to continue the trek for one
million sales (Nelson 14). The parent brand must hasten the speed at which [they] bring new
models to the market and innovation to the market," Horn told a representative of Rueters in
January (15). Progress is already being made across the brand spectrum by introducing the
Audi A3 as well as products like the compact crossover offering from Porsche, the Macan.

Works Cited
Choi, Joseph. "Is Volkswagen's North American-built Passat Losing Steam?" NADA. N.p., 29
May 2013. Web. 05 May 2014.
Covert, Bryce. "Union President: Politicians Interference In VW Union Vote Clear Violation
Of The Law." ThinkProgress. N.p., 25 Mar. 2014. Web. 04 May 2014.
Hewitt, Ben. "Clean Diesel Advantages - Hybrid vs Diesel Cars." Popular Mechanics. Hearst
Communications, 1 Jan. 2008. Web. 05 May 2014.
Frost, Laurence, Andreas Cremer, and Paul Lienert. "Insight: Has Volkswagen Discovered the
Holy Grail of Carmakers?" Reuters. Thomson Reuters, 11 Feb. 2013. Web. 04 May 2014.
Nelson, Gabe. "VW Will Add SUV to U.S. Lineup in 2016 amid $7 Billion Investment Plan."
Automotive News Europe. Crain Communications, Inc,, 13 Jan. 2014. Web. 6 May 2014.
Snavely, Brent. "Tenn. Lawmakers Issue Incentive Threat in VW Union Move." USA Today.
Gannett, 11 Feb. 2014. Web. 04 May 2014.
Valdes-Dapena, Peter. "Diesel Cars: 7 Worries, 7 Answers." CNNMoney. Cable News Network,
11 Mar. 2008. Web. 05 May 2014.
"Volkswagen Group Makes a Good Start to 2014." MarketWatch. MarketWatch, Inc., 29 Apr.
2014. Web. 05 May 2014.
"VW Conquers the World." The Economist. The Economist Newspaper, 07 July 2012. Web. 06
May 2014.