FREE ESSAY ON VOLKSWAGEN

VOLKSWAGEN

1. Issues
? VW should pursue its quality improvement
? Bad image of VW's management
? Production strategy - only five platforms - similitude between different brand's
products
? Communication with shareholders - too high cost of capital
2. Background
Company
The first VW Beetle was created by Piech's father at Hitler's request. In 1972, Piech
went to VW's Audi unit, where despite his rottweiler reputation, he oversaw enough
innovation to win the Audi chairmanship in 1988. He managed to transform Audi into a
credible competitor of BMW and then moved to the top spot at VW. 
In 1993, when Piech took the helm, VW lost $1.1 billion; in 1998, profits rose by 63%, to
$3.6 billion before taxes
Porsche and VW have an agreement to jointly develop an SUV platform. Porsche Holding, the
private arm of the Porsche empire, became a major importer of VW and Porsche cars in
Austria when it was run by Piech's mother, who took charge after his father's death in
1952.
Market
VW and General Motors are very aggressive competitor as the Jose Ignacio fight showed
it.
VW trails Toyota, Mercedes, Nissan, and Honda in overall quality, eventhough they cut
defects of 60% in the past five years.
The new Beetle has known a good success in the US. In 1998, American sales rose to their
highest level in 17 years, with a 59% increase for VW and a 39% increase for Audi.
Each VW's brands has a direct competitor : Volvo for Skoda, Alfa-Romeo for SEAT, BMW for
Audi, Mercedes for VW.
In 1998, VW bought the Bentley brand, and by the same time holded 75% of the ultra-luxury
volume when Rolls-Roys was 25%.
A growing trend is arising from the market, reducing the number of platforms as much as
possible.
Actually, VW and Toyota are sharing the bronze medal of carmaker.
3. SWOT 
Strengths
? VW has boosted quality more than any other carmaker in the past five years, cutting
defects by 60%
? The new Beetle has injected buzz into the brand, luring buyers into dealerships where
they're also snapping up Passats, Jettas, and Audis
? VW's share price climbed 36% last year, nearly double the pace of the overall German
market
? In the US, where VW ADRs trade over the counter, VW outperformed GM
? Piech has a "name", and had acquire a lot of experience running Audi
? VW managers attend test drives, and therefore know exactly their different products
? Their "family culture", no leading brand
? A non-stop requirement for the new projects
? Cost-control with the purchasing list
? Own seven different car brands, offering two broad categories, one for the traditional
driver and one for the performance-minded driver.
? Hide financial results through German accounting principles
Weaknesses
? VW still trails Toyota, Mercedes, Nissan, and Honda in overall quality
? VW is suffering from a bad image of its management department eventhough they have done
an incredible work; Piech has no relational skills, especially with the press
? They have the same problem inside the company, due to the fact that Piech has put his
own team in place when he arrived, firing all potential enemies
? Piech blurs the line between his family interests and those of VW
? Bad publicity due to the sue from GM
? VW's cost of capital is relatively higher than Daimler's
? VW bungled its communications with investors
Opportunities
? Take advantage of the attractiveness of the new Beetle to get customers into point of
sales
? Growth potential in the American market, last year American sales rose to their highest
level in 17 years, with a 59% increase for VW and a 39% increase for Audi
? Due to its very good results on the stock exchange, VW may expect to attract numerous
new investors
? Potential cost decrease with their production strategy - five platforms only
Threats
? A softening in auto sales in Europe and South America in projected for 1999
? Risk of self-cannibalization between VW's brands, like top of the line VW's models and
bottom of the line Audi's
? Risk of brand dilution, confusion between the VW Passat and the Audi A4
4. Alternatives
In order to pursue its quality improvement, VW as it wants to do, should uniformalized
its quality requirements through platforms sharing, and therefore be able to gather
efforts of all research and development department of all its seven brands to benefit
from synergy.
Relating to this problem is also the fact that VW has to be sure that its "platforms
sharing" strategy will enable car designers to be enough flexible to meet different
market demands and therefore avoid brand dilution as it is actually happening with the VW
Passat and the Audi A4.
In order to be more "friendly looking", which is becoming more and more important in
todays'market, VW should make some efforts in all its declaration and be more available
to the press, which will at the same time give VW, "free publicity".
VW should change its German accounting method to a more universal one, eventhough Piech
thinks it is a firewall against takeover, to enable shareholders to see in what their are
really investing and, for VW, to be more cost competitive regarding to the market.
5. Recommendation
Personally, I would recommend VW to pursue their targeted production strategy with a
special emphasized on the flexibility of the different platforms to ensure that no more
similitude will arise from future creation and therefore avoid any potential brand
dilution.
Also, I think that a more shareholders relationship should arise in order to prevent for
future capital need, despite the fact that no actual signal shows it, due to the
unpredictable extra-costs, for ensuring flexibility, that will arise from the platforms
centralisation.