Volkswagen AGVolkswagen AG

Situation AnalysisSituation AnalysisEBA 605, Dr. J. ColemanEBA 605, Dr. J. ColemanSaturday, March 11, 2006Saturday, March 11, 2006

Team Maxxim presents

Project Goals & ObjectivesProject Goals & Objectives

Highlight trends in the automobile industryHighlight trends in the automobile industry

Analyze and critique Volkswagen recent Analyze and critique Volkswagen recent decisionsdecisions

Discuss where and why VW went wrongDiscuss where and why VW went wrong

Offer potential solutions as an objective Offer potential solutions as an objective outsideroutsider

Volkswagen AG

Presentation OverviewPresentation Overview

Company Overview Company Overview Brand PortfolioBrand Portfolio Current SituationCurrent Situation The VW Customer The VW Customer Competitive AnalysisCompetitive Analysis FinancialsFinancials SWOT AnalysisSWOT Analysis QuestionsQuestions

Volkswagen AG

Volkswagen AG

Corporate OverviewCorporate Overview

HQ: Wolfsburg, GermanyHQ: Wolfsburg, Germany US Operations: Auburn Hills, MIUS Operations: Auburn Hills, MI Europe’s #1 automobile manufacturerEurope’s #1 automobile manufacturer Traditional Brands: Traditional Brands: Jetta, Passat, Touareg, Jetta, Passat, Touareg,

Phaeton, Fox and AudiPhaeton, Fox and Audi International Brands: International Brands: SEAT and SKODASEAT and SKODA Annual production: 5M vehiclesAnnual production: 5M vehicles Annual sales: $121,345/ 10.9 YOY growthAnnual sales: $121,345/ 10.9 YOY growth Employees: 342,502 worldwideEmployees: 342,502 worldwide

Volkswagen AG

Key MilestonesKey Milestones

1930s1930s Factory opened in

Wolfsburg, Germany

1940s1940s Production of first Volkswagen Company turned over to German government

1950s1950s VW begin building foreign plants Launched “Beetle” in US market Developed Microbus

1960s1960s Sold stock to the German public Purchased Auto Union (AUDI) US Beetle sales took off

1970s1970s Beetle discontinued in every country except Mexico

1980s1980s Begin car venture in China Purchased SEAT Formed Autolatin in Brazil

1990s1990sBuilt China’s largest auto plantLaunched Passat Acquires Rolls-Royce and Bugatti Launched New Beetle in US

2000s2000sSpent 3.1B to Spent 3.1B to modernize factoriesmodernize factoriesThe final Beetle The final Beetle ended a 70-year runended a 70-year runInvested 1.7B in Invested 1.7B in China (Asia/Pacific)China (Asia/Pacific)Bernd Pischetsrieder Bernd Pischetsrieder joined companyjoined company

Volkswagen AG

Volkswagen Group Brand PortfolioVolkswagen Group Brand Portfolio

emotionfunctionality

sophistication

zones of low demand

zones of low demand

Volkswagen AG

Current Situation – Project BasisCurrent 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 inHigh risk, high reward strategies

Volkswagen AG

The VW CustomerThe VW Customer

Positioning Statement: Positioning Statement:

For the cost conscience buyer, Volkswagen For the cost conscience buyer, Volkswagen

offers reliability and value.offers reliability and value.

Value Proposition:Value Proposition:– Target Market: Cost conscience buyer (parents, Target Market: Cost conscience buyer (parents,

females, young adults)females, young adults)– Benefits offered: German technologyBenefits offered: German technology– Relative price: Affordable, reliableRelative price: Affordable, reliable

Volkswagen AG

The VW CustomerThe VW Customer

YoungFemale

Age 19-32College-Educated

Parents

Aspirational value

Global ReachUSA, France

Spain, UK Germany

Italy, China

Value conscience

Volkswagen AG

Volkswagen Global Marketing MixVolkswagen Global Marketing Mix

2

3

4

Brand portfolio Volkswagen Audi Seat Škoda 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 AnalysisVW 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 MarginOperating Margin

3.385.77 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

0.332.060.03

0.72

6.72

1.741.45

-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 ProfitsNet Profits

Volkswagen AG

5 Year Sales Trend (in billions)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 AssetsReturn on Equity – Return on Assets

18.35

12.1910.54

4.5832.53 2.8 2.38

0.94 0.56

0

5

10

15

20

2000 2001 2002 2003 2004

ROE ROA5-year periodReduction in ROE & ROA

Volkswagen AG

SWOT ANALYSISSWOT ANALYSIS

STRENGTHSMarket Leaders

High Brand EquityFocus on Innovation

OPPORTUNITIESNew market to explore (India)

Auto sales up 30%2010 India will have 36x more cars

Increase disposable incomeLaunch new models

WEAKNESSSlow revenue growth

Low presence in SUV marketRising admin expenses

THREATSFierce competition

Increasing steel pricesDecline car sales in U.S.

Low consumer spending in Germany

Volkswagen AG

Challenges and Risks*Challenges and Risks*

CostsCosts Revenue and Revenue and

PerformancePerformance

futu

recu

rren

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!Thank you!

ReferencesReferences

Culp, Eric, “VW in Fresh Trouble as it Withdraws US Model”, Knight Culp, Eric, “VW in Fresh Trouble as it Withdraws US Model”, Knight Ridder Tribune Business News, 11/05, pg 1Ridder Tribune Business News, 11/05, pg 1

Flint, Jerry, “The Fast and the Furious”, Flint, Jerry, “The Fast and the Furious”, www.forbesauto.comwww.forbesauto.com, 01/06, 01/06 Fondon, Daren, “A Pitch to the Rich”, Times Online, 11/03Fondon, Daren, “A Pitch to the Rich”, Times Online, 11/03 Hoover’s Company Information, Hoovers, Inc., 2006Hoover’s Company Information, Hoovers, Inc., 2006 Landler, Mark, “Volkswagen Chairman Step Down”, Landler, Mark, “Volkswagen Chairman Step Down”, New York TimesNew York Times, ,

01/0601/06 Landler, Mark, “Porsche to Build a 20% Stake in VW”, Detroit News – Landler, Mark, “Porsche to Build a 20% Stake in VW”, Detroit News –

Auto Insider/New York Times News Service, 09/05Auto Insider/New York Times News Service, 09/05 Power, Stephen, “Once Hot Volkswagen Attempts to Reverse U.S. Sales Power, Stephen, “Once Hot Volkswagen Attempts to Reverse U.S. Sales

Decline”, Wallstreet Journal (Eastern Edition), New York, 09/05, pg A3Decline”, Wallstreet Journal (Eastern Edition), New York, 09/05, pg A3 Rancanelli, Vito J., “Turn Around Ahead at Volkswagen”, Barron’s, Rancanelli, Vito J., “Turn Around Ahead at Volkswagen”, Barron’s,

05/05, Vol. 85, Issue 20, pg 2605/05, Vol. 85, Issue 20, pg 26 Thomas, Chad & Archey, Sheenagh, “Porsche Buys 20% in the VW’s Thomas, Chad & Archey, Sheenagh, “Porsche Buys 20% in the VW’s

Share to Prevent Takeover”, Bloomberg Share to Prevent Takeover”, Bloomberg NewsNews, , http://quote.bloomberg.com/apps/newshttp://quote.bloomberg.com/apps/news, 09/205, 09/205

Volkswagen AG

Volkswagen AG

ReferencesReferences Brodrick, Sean. Set Your Sights On Asia’s Sleeping Elephant. Brodrick, Sean. Set Your Sights On Asia’s Sleeping Elephant.

http://www.escapeartist.com/efam/70/Invest_In_India.htmlhttp://www.escapeartist.com/efam/70/Invest_In_India.html www.datamonitor.com