Team Maxxim presents

Volkswagen AG

Situation Analysis EBA 605, Dr. J. Coleman Saturday, March 11, 2006

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
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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

1940s
Production of first

1950s
VW begin building

1960s
Sold stock to the German public Purchased Auto Union (AUDI) US Beetle sales took off

Wolfsburg, Germany

Volkswagen Company turned over to German government

foreign plants Launched Beetle in US market Developed Microbus

1970s

1980s

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

Beetle discontinued Begin car venture in in every country except China Mexico Purchased SEAT Formed Autolatin in Brazil

Volkswagen AG

Volkswagen Group Brand Portfolio

sophistication

zones of low demand

zones of low demand

functionality

emotion

Volkswagen AG

Current Situation Project Basis

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

Porsche increase stake in VW Recently hired Wolfgang Bernhard to head VW group Launched Moonraker project

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
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The VW Customer
Young Female Age 19-32 College-Educated Parents
Global Reach USA, France Spain, UK Germany Italy, China

Value conscience

Aspirational value

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Volkswagen Global Marketing Mix

Brand portfolio
Volkswagen Audi Seat koda Bugatti Bentley Lamborghini Commercial vehicles

Unique brand identity for

Development of

each nameplate Complete product range Mostly standardized products with minor adaptations

distribution partners Separated distribution channels for each brand International standardization of dealers

Setting prices with regard to

Global Marketing Mix

4

Glocalized communication
Emphasis on the European

competitors Price discrimination across regions No price competition in emerging markets Strict cost controlling
3

market Brand advertising Emotionalization

Volkswagen AG

VW Competitive Analysis
Golf Passat Jetta

Phaeton

Touareg

New Beetle

1.5 23.9

7.6 13

35.5
Volkswagen Toyota DiamlerChrysler General Motors Ford

Volkswagen AG
*Numbers based on 2004 Marke tshare

Operating Margin
30 25 20 15 10 5 0 3.38 2000 5.77 2001 Volkswagen Toyota 5.16 2002 DiamlerChrysler 5.56 6.01 4.94 7.44 8.49 1.92 2003 General Motors Ford 9.64 1.73 2004 4.94 6.71 6.81 6.22 3.25 6.22

Net Profits
18 16 14 12 10 8 6 4 2 0 -2 5.56 0.93 3.15 4.08 2.28 2000 3.1 2.8 0.03 2.06 0.33 5.88 1.18 2003 General Motors Ford 1.45 1.74 6.72 0.72 -0.6 2004

2001 Volkswagen Toyota

2002 DiamlerChrysler

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5 Year Sales Trend (in billions)

4,032

Sales increased by 4.9% in 2004 Shareholders net profits Substantial decrease 00 to 01

163,331

2,915

2,984

1,095

667

88,540

86,948

87,253

88,963

2000

2001

2002

2003

2004

5-Year Sales Trend

Volkswagen AG

Return on Equity Return on Assets

20 15 10 5 0 2000
5-year period Reduction in ROE & ROA
4.58 2.53 2.8 2.38 0.94 3 0.56 18.35

12.19 10.54

2001 ROE

2002

2003 ROA

2004

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SWOT ANALYSIS
STRENGTHS Market Leaders High Brand Equity Focus on Innovation WEAKNESS Slow revenue growth Low presence in SUV market Rising admin expenses

OPPORTUNITIES New market to explore (India) Auto sales up 30% 2010 India will have 36x more cars Increase disposable income Launch new models

THREATS Fierce competition Increasing steel prices Decline car sales in U.S. Low consumer spending in Germany

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Challenges and Risks*

Costs Revenue and Performance
Price pressure Weak economy

current

Increasing product costs High investments

Depreciation Legislation Investments in future markets Raw material prices Labor costs

Further price pressures Chinese operations US operations-luxury market $/ Exchange rates

future

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*Volkswagen AG 2005 Strategy Meeting

Thank you!

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

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