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

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

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

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  1. Team Maxxim presents Volkswagen AG Situation Analysis EBA 605, Dr. J. Coleman Saturday, March 11, 2006

  2. 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

  3. Presentation Overview • Company Overview • Brand Portfolio • Current Situation • The VW Customer • Competitive Analysis • Financials • SWOT Analysis • Questions Volkswagen AG

  4. Corporate Overview • HQ: Wolfsburg, Germany • US Operations: Auburn Hills, MI • Europe’s #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

  5. Key Milestones

  6. zones of low demand zones of low demand Volkswagen Group Brand Portfolio sophistication functionality emotion

  7. Current 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 in High risk, high reward strategies

  8. 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

  9. The VW Customer Demographics Young Female Age 19-32 College-Educated Parents Global Reach USA, France Spain, UK Germany Italy, China Geographic Geo-demographic Value conscience Aspirational value Behavorial

  10. Volkswagen Global Marketing Mix • Brand portfolio • Volkswagen • Audi • Seat • Škoda • Bugatti • Bentley • Lamborghini • Commercial vehicles • Unique brand identity for each nameplate • Complete product range • Mostly standardized products with minor adaptations • Development of distribution partners • Separated distribution channels for each brand • International standardization of dealers 1 2 • Setting prices with regard to competitors • Price discrimination across regions • No price competition in emerging markets • Strict cost controlling Global Marketing Mix 4 • Glocalized communication • Emphasis on the European market • Brand advertising • Emotionalization 3

  11. VW Competitive Analysis Passat Jetta Golf Phaeton New Beetle Touareg Volkswagen AG *Numbers based on 2004 Marke tshare

  12. Operating Margin Net Profits

  13. 5 Year Sales Trend (in billions) • Sales increased by 4.9% in 2004 • Shareholders net profits • Substantial decrease ’00 to ‘01

  14. Return on Equity – Return on Assets 5-year period Reduction in ROE & ROA

  15. 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

  16. Costs Revenue and Performance Challenges and Risks* • Increasing product costs • High investments • Price pressure • Weak economy current • Further price pressures • Chinese operations • US operations-luxury market • $/€ Exchange rates • Depreciation • Legislation • Investments in future markets • Raw material prices • Labor costs future *Volkswagen AG 2005 Strategy Meeting

  17. Thank you!

  18. 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 • Hoover’s 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”, Barron’s, 05/05, Vol. 85, Issue 20, pg 26 • Thomas, Chad & Archey, Sheenagh, “Porsche Buys 20% in the VW’s Share to Prevent Takeover”, Bloomberg News, http://quote.bloomberg.com/apps/news, 09/205 Volkswagen AG

  19. References • Brodrick, Sean. Set Your Sights On Asia’s Sleeping Elephant. http://www.escapeartist.com/efam/70/Invest_In_India.html • www.datamonitor.com

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