1. Issues
?VW should pursue its quality improvement
?Bad image of VW抯 management
?Production strategy ?only five platforms ?similitude between different brand抯 products
?Communication with shareholders ?too high cost of capital
2. Background
Company
The first VW Beetle was created by Pi隿h抯 father at Hitler抯 request. In 1972, Pi隿h went to VW抯 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 Pi隿h 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 Pi隿h抯 mother, who took charge after his father抯 death in 1952.
Market
VW and General Motors are very aggressive competitor as the Jos?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抯 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抮e also snapping up Passats, Jettas, and Audis
?VW抯 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
?Pi隿h has a 搉ame? and had acquire a lot of experience running Audi
?VW managers attend test drives, and therefore know exactly their different products
?Their 揻amily 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; Pi隿h has no relational skills, especially with the press
?They have the same problem inside the company, due to the fact that Pi隿h has put his own team in place when he arrived, firing all potential enemies
?Pi隿h blurs the line between his family interests and those of VW
?Bad publicity due to the sue from GM
?VW抯 cost of capital is relatively higher than Daimler抯
?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抯 brands, like top of the line VW抯 models and bottom of the line Audi抯
?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 損latforms 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 揻riendly looking? which is becoming more and more important in todays抦arket, VW should make some efforts in all its declaration and be more available to the press, which will at the same time give VW, 揻ree publicity?
VW should change its German accounting method to a more universal one, eventhough Pi隿h 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.
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