Volkswagen AG is the world’s leading automobile company, headquartered in Germany. During the recession, when other competitors lost dramatically, Volkswagen utilized excellent strategic planning to survive through the recession and earn profits. By expanding the business in the emerging market like China and Brazil, the company proved the strong growth, even outperformed other rival companies like Toyota or Nissan. The case focuses on the expansion and power of Volkswagen in the world and its strategy to develop the brand and increase sales worldwide.
Vision of Volkswagen is to become the global automotive leader.
The company mission is expressed as the company main goal: The goal is to offer attractive, safe and environmentally sound vehicles which can compete in an increasingly tough market and set world standards in their respective class.” The purpose of Volkswagen’s mission is to communicate its business core targets to its stakeholders and motivate VW Group to achieve their objectives.
The American automobile industry suffered deeply from the recession, particularly the “Big Three” companies of General Motors, Ford and Chrysler. The emerging markets like China, Mexico, Brazil or Indonesia offered more opportunities for suppliers to create better value chain and increase sales for businesses in the automotive industry. After the recession in 2009, the dollar value in the U.S. decreased dramatically that motivated the American companies to expand their businesses overseas, the unemployment rate increased and the GDP decreased severely, mainly because people lost their jobs and cannot afford things. US International Trade Commission reported a loss of average annual rate of 20.2% in import during 2008-2009, marked a crisis in the US economic history (Sturgeon, 2010). Social, Cultural, Demographic, and Natural Environment Forces In the United States, the recession broadened the gap between the rich and poor.
People tended to buy what they really need and are very alert at spending money. Since the increasing of the gas prices, customers preferred cars with fuel-efficiency. However, at the same time, in the developing countries, especially the Southeast Asia, when the U.S. dollar decreased, the population growth increased with the greater demand for oversea goods and products including the automobile products. Therefore, there were the increasing roles of large suppliers across the world and the expansion of many brands overseas in the automobile industry, which created the global integration and the globalization upon the supply base (Sturgeon, 2010). It was a great time for huge companies to merge or own the competitors in the automobile industry to expand the business.
Political, Governmental and Legal Forces
In 2008, the US Congress created the Economic Stimulus Act of 2008 to design a $152 billion stimulus to help stave off the recession, which consisted $600 tax rebates to low and middle income Americans (Weller, 2012). In 2009, American Recovery and Reinvestment Act of 2009, a $787 billion bill covering expenditures from rebated on taxes to business investment, was implemented (Weller, 2012). In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act strongly recovered the economy by cutting the payroll tax and maintaining extended unemployment insurance benefits (Weller, 2012).
The recession has force manufactures in the US and Europe to minimize their cost and improved their technological development. Car manufactured implemented a combination of retrenchment and investment strategies to recover their profitability. Besides, forming or merging alliances with competitors enable car companies to share technique and methods on technological development to create clean, fuel-efficient vehicles with lower prices (Majstorovic, 2010).
There is strong and severe competition in the automobile market in the world. The major competitors of Volkswagen are Toyota Motor Corporation, Ford Motor Co., General Motors Company, Honda Motor Company, Nissan Motor, Tata Motors, Ltd., and others.
Expand business globally with operations in 153 countries, especially strong presence in China and Brazil, emerging markets. Leading auto company in China, outperformed Toyota and Nissan Market share in Western Europe rose from 17.9% in 2008 to 20% in 2009 Diverse car named for climate patterns, insects and small mammals. Along with the New Beetle, VW’s annual production of 6 million cars, trucks and vans. Operates plants in Africa, the Americas, Asia/Pacific, and Europe. Holds 68% of the voting rights in Swedish truck maker Scania and about 30% of MAN AG. Access to immense consumer market and satisfies most customers worldwide and offer consumer financing Acquires Porsche Automobile Holding SE and merging their auto brands into VW. Owns 13 separate, strong automotive brands that make unique synergy to share partly R&D, serving costs, best practices and distribution channels. Obtained 20% of Chinese market, the world’s largest automotive market, mainly with Audi and Volkswagen. MAN AG, German truck maker and engineering company and VW’s largest single shareholder at 30% has run good business with strong profit at 34% in 3rd quarter 2008.
Currently investing $1 billion to build a new plant in Chattanooga, Tennessee, for the production of a midsize sedan in 2011 with initial capacity of 150,000 cars annually. Increased 2009 U.S. marketing budget by 15% in its Audi AG luxury division. VW’s net profit rose 15% to 4.75 billion euros and revenues rose 4.5% to 114 billion. Plan to partner with BYD, world’s largest suppliers of cell phone batteries, to build hybrid and electric vehicles powered by lithium batteries. Is building a new assembly plant in Indonesia for $47 million about 1 hour east of Jakarta, the capital. VW’s 2nd quarter 2009 earned $397 million, with largest contribution from the Audi division. Excellent strategic planning during the recession
VW’s competitors are incurring billion dollar losses in 2009. Based in Stuttgart, Germany, Porsche owns 51 percent of VW but has weakened in 2009 after taking $12 billion in new debt. VW’s can change customer demands by producing better fuel-efficient models that are friendly with the environment. Fuel prices are increasing, which makes customers become more loyal with fuel-efficient cars. The demand for buses globally is expected to increase by 5% annually that offer VW higher change to expand its manufacturing. Power to grow business through acquiring competitors to get access to larger customer markets
The case study about Volkswagen AG has proved that by innovative and flexible strategic management, the company can overcome the difficulties to grow bigger and stronger. During the recession, Volkswagen has out-performed its competitors to earn profit in the emerging markets and provides the best products for customers worldwide. By utilizing its strengths and reducing the weaknesses, the company has responded appropriately and fast to the external factors to become the leading automobile company in the industry.
To grow faster and more efficiently, the company should expand its business in more developing countries where the demand for cars remains high through years. The company also should build the image of green car with environmentally friendly models and fuel-efficient. Besides, because the major of its business operates in Europe, the company should put more effort to maximize the needs of customers there with the best quality cars and build up strong collaboration with other well-known brands in the automobile industry.
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