Globalizing Volkswagen: Creating Excellence on all fronts

Automotive Industry Trends in the period of the 90s

• Revolutionary changes in manufacturing processes (system based on a network of suppliers, JIT, lean systems, outsourcing, kanban) - report from MIT (Massachusetts Institute of Technology)

•The change in perception and consumer lifestyle (marked the emergence of a variety of niche segment)

• Environmental issues and fuel efficiency

• The rapid development of business support car manufacturing industry (finance, insurance, credit cards and leasing)

• The strategic alliance between the car manufacturer in R & D

Gradual change in perception of the company's line of products:

• Audi having elevated into premium luxurious cars• Volkswagen moved upmarket to fill the void left 

by Audi (the fifth-generation Passat launched)• Seat and Skoda now occupying what was once 

VW's core market• In 1994, start the development of new bettle• This (VW) move upmarket was continued with 

the Mark 4 Golf, introduced at the end of 1997

MANAGING PRODUCTS PORTFOLIO: ..through the heart and soul of the brand 

• Integrate VW plants within the same region• Similarity of the platform allowed for short set up times in factory, 

underutilized plants receive parts from other plants• Flexible production schedule, improve the flexibility and efficiency 

of production• Foreign employment level had increased from 41% (1993) to 51% 

(2001)• Worker in Wolfsburg had their work time reduced by 20% and 

received 16% less salary (in 4-day workweek)• In all modular production facilities, wages are dramatically lower 

and unions are much weaker than in traditional auto plants

Global manufacturing system, modular production and platform strategy

Strategy options

Appropriate strategy: Use similar parts Badge manufacturing (same car with diff brands) Platform sharing (same manufacturing space for many cars)

- Faster development times

- Low development costs

- Easy to achieve Economies of scale

- under utilized plants picked up Polo vs. Golf

World class manufacturingInnovative approaches: Audi engine plant in Hungry

- Became component supplier to VW group

- 1 Million engines, over 50,000 Audi TT

- Biggest exporter of Hungry

Skoda plant in Czech Republic

- Forefront of supplier Integration of Europe

- 6 integrated online suppliers (carpets, seats, exhaust systems, dashboards )

- Most cost-effective in Europe

- Increased Output per employees

- 10.1 (1994)

- 30 (1998)

World class manufacturing VW plant in Resende, Brazil (1996)

- Most innovative factory in world-30,000 trucks and buses per year- Responsible only for final quality control

Modular  manufacturing systems (2000)- 11 modules-Common for many car models- Total capacity- 10 million units

Flexible production schedule in Germany, 5000 X 5000 program- Flexibility of production with Union-Aligning production and sales- Less inventory - Vary working hrs with demand (48 hrs in peak)- Promise to reduce unemployment by 50%

      - Guaranteed fixed salary (depending on employees competency)

World wide sales North America

- NAFTA countries (US, Canada, Mexico) – massive growth

-Increase in US market share from 1% (1993) to 5% (2000)

- Shortage of vehicles – imported from Brazil and Europe

Asia and Europe- Command over 51% of Chinese market share

-Local production sites, suppliers relocation to comply with the local demand

- Highly competitive market European market

- Ford Europe struggling with high production bases

- market share dropped from 13.5 to 10.8

- Lost around $2.7 billion and reduced the production capacity from 2.3 million to 1.6 million in 2001

- Opel (European Division of GM) – focus on developing countries

- Failed to achieve cost efficiency

- Market shares dropped down from 12.9% to 10.8% (1994 – 2000)

Distribution and Financial systems Physical differentiation of VW and Audi

- Large price range among the products( diff. dealership/independent roof)- Opportunity to build own delivery centre and theme park in Wolfburg- Team “Autostadt” – tourist attraction -2 engine cylinders (Auto towers), storage of ready for delivery cars, can handle 1000 cars daily, display of history of cars and modern production process

Financial Services Retail customers Car credits, leasing and insurance services Fleet customers Dealer services (working capital loan, investment loan and financing of inventories) Volkswagen banks (credit cards, bank a/c mortgages, online and telephone 

banking)

Piech said: "You don't win battles by being friendly."

• Piech is a car-obsessed engineer and perfectionist. 

• Piech has claimed that the three great loves of his life are: Volkswagen, family, and money.

• Breaking the old traditions: arranged new  product portfolio and new manufacturing strategy

• Strict management policy.  Many speak that he uses dictatorial management style. 

• Piech is known for his determination and ambition.

• His aggressive style moves VW groups into new market segments (Bugatti, Lambo, Bentley, etc)

Ferdinand Piech, Ferdinand Piech, ““the driven man of VW”the driven man of VW”

1993-2002 - PIECH transform VW into big cash machine

Piech’s Way• Introduction of 4 day work week• Annual work time reduced by 20% and 16% less salary to 

employees • 20% reduction in Board members salary• Reduced number of Board members from 9 to 5• Believed in open competition between the brands• Different brands were free to make their decisions as long as 

they produced good results• Technology sharing between the brands

VOLKSWAGEN FUTURE CHALLENGE

• Keep the competitive advantage sustainable. 

•  Maintaining economies of scale from global manufacturing and sales worldwide

• Environmental issues:• Aware of the role of new 

technologies (efficient Diesel engine, flexible-fuel vehicles)

Question 1• CHALLENGES and PROBLEMS that arose

– Changing consumer needs– Weak model line-ups (VW Car prices are considered not reasonable

by the consumer)– Over staffing– Inefficiency (the other car manufacturers are able to produce with

more efficient)– High cost base (cost of plant operations is too high)– Less market share in US and to some extent Europe due to the

dominance of Ford and Opel– Lack of integration between the brands managed resulting in

unnecessary duplication of costs

AUDI A8 4.2

VW PHAETON

Modular manufacturing

system “PLATFORM D”

(wiring-steering-braking diagrams)

VOLKSWAGEN

success story:

Platform strategy

Question 5• Open communication among the Board members

(Information sharing – all can present their ideas)• Organic structure (can express their views freely as long

as each brand contributes equally)• Decentralize at brands level• Work time and salary is reduced

THANK YOUSubmitted By : Ashwath PBakul SanakalFenella AndradeSarah