INTRODUCTION

Literally, the word "Volkswagen" means "people's car." As a carmaker, they are
under an obligation to their customers and society to supply high-quality products that
are safe and environmentally compatible. The Volkswagen Group with its headquarter
in Wolfsburg is one of the world’s leading automobile manufacturers and the largest
car producer in Europe.
The "Volkswagen Group" consists of some of the biggest names in the Automobile
Industry. The Group consists of eight brands: Volkswagen, Audi, Bentley, Bugatti,
Lamborghini, SEAT, Skoda and Volkswagen Commercial Vehicles. Each brand has
its own character and operates as an independent entity on the market. The product
range extends from low-consumption small cars to luxury class vehicles. The
Volkswagen Group's models are sold in more than 150 countries.

Group Values
• Customer Nearness

• Top Performance

• Added Value

• Renewabilty

• Respect

• Responsibility

• Sustainability

The Board of Management of Volkswagen AG comprises five members. Each Board

Member is responsible for one or more functions within the Volkswagen Group. Prof.
Dr. Martin Winterkorn is the Chairman. The work of the Board of Management of
Volkswagen AG is supported by the boards of the brands and regions as well as by
the other group business units and holdings. The Supervisory Board is responsible for
monitoring the Management and approving important corporate decisions. Moreover,
it appoints the Members of the Board of Management. The Supervisory Board of
Volkswagen AG comprises 20 members and conforms to the German Co-
determination Act. Dr. Ferdinand K. Piëch is the Chairman of the Supervisory Board
of Volkswagen AG.

The aim of the Group is to offer attractive, safe, environmentally friendly vehicles
which are competitive on increasingly tough markets and represent the global
benchmark in their respective classes.
A BRIEF JOURNEY THROUGH A LONG HISTORY

When in 1937 the company known as "Gesellschaft zur Vorbereitung des Deutschen
Volkswagens mbH" was founded, no one could have guessed that it would one day be
Europe's largest carmaker. The history of the company - with all its trials and
tribulations - is first and foremost a story of impressive success. It is this very
company that today we come to know as “VOLKSWAGEN”.

1937-1945
On May 28th, 1937 the "Gesellschaft zur Vorbereitung des Deutschen Volkswagens
mbH" company was founded, and on September 16th, 1938 it was renamed
"Volkswagenwerk GmbH". In early 1938, in what is today Wolfsburg, work begans
on construction of the Volkswagenwerk plant which was to house production of the
new vehicle designed by Ferdinand Porsche.

1945-1949
After the end of the Second World War, in mid June 1945, responsibility for
Volkswagenwerk was placed in the hands of the British Military Government. Under
the management of Major Ivan Hirst, mass production of the Volkswagen Beetle was
started.

1949-1960
On March 8th, 1950 the Type 2 went into production, expanding the company's
product range. The Volkswagen Bus, till today known to many as the "VW Bully",
soon created rising demand thanks to its multifunctional capabilities. In 1956 a
separate manufacturing base for the transporters was established in Hanover, at the
same time setting down the roots of today's Volkswagen Commercial Vehicles brand.

1960-1980
On February 17th, 1972 Volkswagen broke the world car production record: with
15,007,034 units assembled, the Beetle surpassed the legendary mark achieved by the
Ford Motor Company's Model T, popularly known as the "Tin Lizzy", between 1908
and 1927.

In 1973 the Passat became the first model of the new generation of Volkswagen
vehicles to go into production. The Passat was built in line with the modular strategy,
by which standardized components usable in a range of different models provide
significant rationalization.

1980-1990
In June 1983 production of the second-generation Golf began. The car was designed
for a largely automated assembly process, and in the specially erected final assembly
hall, designated Hall 54, robots were deployed for the first time in vehicle
manufacture.
1990-2000
With the production launch of the Lupo 3l TDI, the first production car came to offer
fuel consumption of just three liters per 100kilometers, in July 1999, Volkswagen
once again made automotive history.

2000-2003
In August 2002, at Volkswagen Slovakia, as in Bratislava, mass production of the
Touareg, a luxury-class off-road vehicle, was started, marking the Volkswagen
brand's move into an entirely new market segment.

In December 2002 the "Auto 5000 GmbH" company, operating a plant at the Group's
site in Wolfsburg, started production of the Touran compact van. A special collective
pay model had been developed, aimed at implementing lean production and involving
flat hierarchies, team working, flexible working hours and the deployment of more
process expertise by the workforce.

2003 production of the fifth-generation Golf was started, embodying a new dynamism
in its design and engineering.

DESCRIPTION OF FIRM

Volkswagen’s Products and Positioning

Size, Growth Rates, and Main Products

In 2006, Volkswagen sold 5,192,576 vehicles worldwide, and sales in 2006 amounted
to 5,192,576 million Euro. Volkswagen is headquartered in Germany, and the
European Community (EC) represents by far the largest market for Volkswagens,
with sales to EC countries comprising nearly 60% of Volkswagen’s global sales.
Sales in Germany (27%) and Brazil (14%) account for the most significant segments
of Volkswagen’s total sales. The U.S., Mexico, and Canada are, respectively, the
seventh, thirteenth, and eighteenth largest markets for Volkswagen vehicles, with
North Americans purchasing around 6% of all Volkswagens sold.

Last year, the firm's global advertising budget was $1.1 billion, with non-U.S.
advertising at $933 million. This contrasts heavily with the global balance of
advertising outlays for many automobile firms. For example, Toyota has an
advertising budget of $1.7 billion, with non-U.S. spending of $989 million.
Volkswagen’s proportionally smaller marketing focus within the U.S. serves to
illustrate the relative unimportance of the U.S. to Volkswagen from a global
perspective.

However, the importance of North American markets has been increasing. The
automaker predicts total sales of 250,000 in 2008 in the U.S., and envisions a steady
double-digit growth pattern in Canada and U.S. in the coming years. NAFTA will
almost certainly act as a catalyzing factor in this growth.

Volkswagen products sold in North America include the Passat, the Jetta, the Golf,
the old Beetle (only in Mexico) and the new Beetle. The Jetta is Volkswagen's best
seller in the United States.

PROBLEMS FACED BY VOLKSWAGEN

Implementation of the North American Free Trade Agreement (NAFTA).(See

annexure 1) has had a dramatic impact on the automobile industry in North America.
The provisions of the NAFTA have led to significant changes in the nature of
automobile production and purchasing within Canada, the United States, and Mexico.

IMPACT OF NAFTA ON VOLKSWAGEN

The Threat of Competition

Possibly the largest challenge facing Volkswagen as a result of the NAFTA is the
reality of increased competition in Mexico from North American competitors—
namely General Motors, Ford, Chrysler, and Nissan. For the first eight years of the
NAFTA (until 2002), firms that do not assemble cars in Mexico were prevented from
importing, leaving these five firms to battle for market share in Mexico.

In 1991, Volkswagen's share of the Mexican market stood at 38%, with Volkswagen
holding a strong lead over its competitors. However, NAFTA appears to have had an
immediate impact by 1995, when Mexico was in the throes of currency devaluation,
Volkswagen had fallen to fourth, behind General Motors, Ford, and Nissan.
Volkswagen's market share has recovered somewhat since, amounting to 23.1% in
1997, second only to General Motors at 26.7%. However, competition in Mexico
from firms that prior to NAFTA had not placed much emphasis on the Mexican
market remains a significant threat to the success of Volkswagen in North America.

Domestic Content Requirements

Another challenge confronting Volkswagen deals with the issue of parts sourcing.
Presently, only automobiles that meet a standard of 56% North American content
under the NAFTA rules of origin may be shipped duty free, and this standard will be
increased in another four years to a permanent level of 62.5%. Although Volkswagen
did not have a great deal of trouble meeting the initial standard of 50% North
American content (largely because it already faced a 36% Mexican content
requirement prior to NAFTA), complying with the higher 56 and 62.5% standards has
and will continue to affect the firm. This requirement has forced Volkswagen to adjust
its sourcing practices, causing it to rely more heavily on parts suppliers within the
U.S. and Canada, rather than on the German sources that have historically supplied
the largest portion of parts to the Puebla plant. If Volkswagen is unable to meet the
stronger domestic content requirements, then it will face the significant competitive
disadvantage of having to pay a 2.5% duty on exports to the U.S.

Labour Issues

The impact of NAFTA provisions pertaining to labour was particularly bad, these
measures had an impact on Volkswagen’s operations in Mexico. The Puebla plant had
already experienced its share of labour difficulties, suffering through a major strike
that crippled production for a time in 1993. Despite the NAFTA Labour
Commission’s lack of direct authority, public pressure brought to bear within Mexico
in turn influenced the Mexican government and Volkswagen’s standards for the
treatment of workers.

North American Opportunities

While it was facing the difficulties presented by the NAFTA, Volkswagen also
confronted opportunities for increased exports of its vehicles from Mexico to the U.S.
and Canada. The elimination of tariffs under NAFTA did allow Volkswagen to
increase its exports to the U.S. and Canada. And in fact exports did increased since
NAFTA was implemented. It is difficult to say, however, how much of this increase
was due to NAFTA, and how much was due simply to the peso crisis and to the
strength of the U.S. and Canadian economies.

It can also be argued that NAFTA has played a role in Volkswagen’s recent decision
to locate a new plant in North America. While there are many factors involved in
where to locate a new plant and the non-existence of tariffs make Mexico or certain
parts of the U.S. look more appealing as potential sites. It is not possible to say that
this plant would not have been proposed if it weren’t for NAFTA, but the fact remains
that NAFTA gave the U.S. and Mexico an additional edge in the search for possible
plant locations.
VOLKSWAGEN STRATEGY

Fluctuating Market Presence in North America

In the 1960s, Volkswagen captured the North American market for the small,
inexpensive automobile with the original Beetle, and soon established a Beetle
assembly plant in Westmorland, Pennsylvania. However, with the rise of Japanese
and other Asian manufacturers in the entry-level market during the 1970s and 1980s,
Volkswagen saw its market share in North America fall precipitously. Also facing
more stringent environmental and safety standards in the US and Canada in 1986
Volkswagen decided to cease all assembly operations in the U.S. and Canada and rely
entirely on imports to service the market. Not facing the same constraints in Mexico,
production of the Beetle continued at the Puebla plant.

Emphasis on Europe

From the mid-1980s Volkswagen's global strategy hinged on

(1) continued growth in production and demand for the Beetle in emerging markets
(especially Latin America) and

(2) a concentration on the European market as the motor of growth in innovative

product lines. Indeed, the European market dominates Volkswagen's global sales. Not
only has Volkswagen emerged as a leader in Europe, but in the post-Soviet era,
Volkswagen has made considerable inroads in expanding production and sales
throughout Eastern Europe, partly through its acquisition of Skoda

Renewed North American Focus

During the 1980s and 1990s growth in VW's European market share required that VW
rely on Mexican capacity to meet demand in North America. This renewed emphasis
on Mexican production was also fuelled by a recognition of VW's price sensitivity in
the U.S. market due to the depreciation in the dollar. (At current exchange rates,
Mexican production is cost-competitive with production in Germany.) However, the
most important aspect of Volkswagen's new strategy centers on the need for a strong
presence in North America in the contest over global automobile markets. Part of this
presence will take the form of imports from Europe (like the new Golf), but increased
production in North America is also essential. Accordingly, Volkswagen has raised its
level of production in North America by 34% in the past two years.

The establishment of a new assembly plant North America will be the most
significant aspect of Volkswagen strategy in North America for some time to come.
Building this facility will allow Volkswagen to take full advantage of North American
free trade and to expand its market presence in North America.

Parts Sourcing

Volkswagen has historically relied on a system of global sourcing to supply parts to

its assembly plants. In Mexico this has changed, however, as a direct result of the
domestic content requirements of NAFTA. The purchase of parts form within North
America, and particularly from the U.S. has expanded in order to meet the
requirements of the NAFTA. Continuing to develop a network of North American
parts suppliers will remain an integral part of Volkswagen’s North American strategy,
especially in light of the proposal to locate a new assembly plant in North America.

Production Techniques

Volkswagen has kept up with industry wide trends towards increased use of new
organizational orientations and methods of "just in time" production. Volkswagen has
focused resources on its labour training programs, seeking to facilitate the rotation of
work functions amongst employees. This development has allowed increased
flexibility in the production of vehicles by ensuring that qualified personnel are
available to accomplish a variety of tasks within their respective production segments.
Volkswagen has also focused on reducing inventories through the use of "just in time"
production, which has led to the creation of much closer ties between parts suppliers
and assembly plants.

The New Beetle

A good sense of the Volkswagen's new marketing strategy can be derived from the
high-profile launch of the new Beetle in 1998. Seeking to stage a "convincing
comeback based on the needs and wants of U.S. customers", and unlike the entry-
level Beetle of the 1960's, the 1999 Beetle is a modern car that is marketed to more
affluent consumers whose preferences can be swayed on the basis of both
performance and nostalgia. This is reflected in the new Beetle's sticker price of
$15,700 U.S. for the base model, which is priced above the Golf but below the Jetta.

Fostering an Upscale Image

While the arrival of the new Beetle promises to bring increases in sales of
Volkswagens, the firm is emphasizing its desire to continue to improve sales of its
upscale vehicles, like the Passat and the new W-12 sports car (Germany). Maintaining
this focus on developing an image as a car maker that is a rival to BMW and
Mercedes is particularly important in the U.S., where expanding into the upscale
market will carry with it substantial long-term gains. Accordingly, Volkswagen plans
to ensure the health of its U.S. advertising budget for these vehicles, even as the ad
campaign for the new Beetle is launched.

New Supplier Strategy

Purchasing costs represent approximately 60% of the cost of production for

Volkswagen cars, with 60-65% of parts coming from outside suppliers. (Of these
suppliers, 80% produce in Germany, and 15-18% in rest of Europe, with the
remainder elsewhere in North America and Asia.)

Volkswagen has begun to include suppliers in the assembly process itself. By directly
employing only engineers, managers and supervisors, and requiring suppliers to
employ their own workers in the assembly plant, Volkswagen hopes to facilitate the
development of new components and models. According to this new supplier strategy,
parts suppliers are also expected to shoulder part of the financial burden of building
the assembly plant itself. As a result, Volkswagen expects unprecedented productivity
gains. If it proves effective, Volkswagen will use the strategy in production in North
America and around the world.

Porters five force model

Threat of new entrant:

1) Nissan, Renault, GM
2) New Technology
Bargaining power of buyers:
There will be an indirect relation between the bargaining power of buyers and various
product segments. More options to choose from the segment Volkswagen operates in.
Honda, Toyota (Accord, Civic, Corolla) already capturing bulk of the market due to
its advanced petrol engines. Skoda has been successful mainly because of its diesel
offerings (Octavia, Laura). The D segment Market has been growing consistently.

Bargaining power of suppliers

Bargaining power of suppliers would be high since VW does not deal in mass
production unlike Maruti and Hyundai.

Substitutes
Volkswagen does not have substitutes in India currently for its diesel offerings except
for the recently launched GM Optra and Hyundai Sonata. But Volkswagen easily
scores over these products due to the brand recognition and loyalty it carries in the
country. VW offers the widest range of diesel cars in the D segment. Niche products
like Lamborghini & Bentley do not have competitors in the Indian market.

Competitors
Honda, Toyota, GM, Hyundai are its direct competitors

VOLKSWAGEN’S ADVERTISING STRATEGY

One of the most successful ad campaigns of all times happened to be an automobile

advertisement. The campaign was for the original Volkswagen Beetle. Everyone
recognized the Volkswagen advertisements of the 1960’s. The new magazine
advertisements were relief to the tired eyes of the average magazine onlooker. Most of
the ads today were full of clutter, vast amount of colors, and enough print one could
mistake the ads for an actual article; the Volkswagen ads have only one sentence, an
occasional a small picture of a beetle, and a refreshing solid white background.

In the November 2000 addition of George magazine, a Volkswagen ad was the

centerfold. The advertisement appears to be two blank white pages at first glance.
Once one looks at the advertisement though, one notices a sentence at the bottom
right-hand page that says, “Just thought we’d give you a moment amid the political
hoopla to think about those issues that matter to you.” That one sentence can bring a
smile on anyone’s face.
The advertisement in InStyle magazine slightly differs. The ad is still a double page
spread with a white background; however, this advertisement has a small green beetle
in the center of the right page and a sentence centered on the left page that says,
“Other cars are starting to look funny.” The yellow-green color of the bug has a
significant effect on the ad. It is not a surprise that the beetle is in a color that
symbolizes a “resurrection of the just” (Brewer) considering the beetle itself was
resurrected. More important then the symbol of the color green is the physiological
effect of the color green. Green suggests “stability, solidity, constancy, persistence,
resilience of the will; and, in regard to the sense of self, a feeling of self-worth”. Does
not that describe the ideal car?

The Volkswagen symbol is a blue circle with white letters that allow the V and W of
Volkswagen to coexist. It is important to know Volkswagen is a German automobile
and “Germut” is a word in German “that cannot be translated into any other language”
. The word describes the psychological effect of the color blue. The description of the
word “Germut” is “the ideal of unity and harmony. It is the primal maternal
attachment, loyalty, trust, love and devotion. Blue is symbolic of timeless eternity and
of harmony in historical time, that is, tradition” . With that definition, it is obvious
why Volkswagen would pick the color blue to be their symbol. The color describes
everything one looks for in friend, family, or lover. Blue was selected to suggest
romance. “The romantic ads tell us the car will make us feel sexy and safe and loved,
that it will give us passion and security in a world that is both humdrum and
dangerous, and sometimes that it will substitute for human relationships”.

Internet addresses printed on the corner of advertisements are now as common as

copyright symbols. The masterminds of Volkswagen however use their internet
addresses as a plug for even more advertisements. If one were to visit the web site not
only can they buy the car of their choice, but they can also download the commercials
for Volkswagen just in case the print ad did not already sell the customer on a
Volkswagen automobile. According to the press releases on the Volkswagen web site,
the advertisements are working. This past year Volkswagen sales are breaking records
with percentage increase in sales per month ranging from 5.8% up to 29.7%. The
Volkswagen campaign is once again a success.
 In 2006 Volkswagen had unexpectedly decided to go back to the Rabbit name for the
North American version of the car known to the rest of the world as Golf.
In a surprise move, Volkswagen of America, Inc. announced that its all-new fifth
generation Golf is going back to the original Rabbit nameplate for the U.S. and
Canadian markets. The reintroduction of the Rabbit represents Volkswagen’s
commitment to this market and is a nod to the passionate North American
enthusiasts who have an emotional connection with the Rabbit name.

Boston Consulting Group’s Growth-Share Matrix

STAR QUESTION MARK

M
A ????????
R
K Bugatti
E
T

G Bentley, Lamborghini
R
O CASH COWS DOGS
W Volkswagen Passenger cars, Audi, Volkswagen Commercial
T Skoda Vehicles, SEAT
H

R
A
T
E

RELATIVE MARKET SHARE

VOLKSWAGEN STRATEGY IN INDIA

Launch of Skoda before VW brand

Volkswagen strategy of introduction of Skoda in India was the part of VW’s long
standing strategy of gauging the price sensitive Indian market. The company wanted
to understand which models in its vast stable would appeal to Indians also the didn’t
want failures to tarnish the VW image which would hamper its future prospects of
entry in Indian auto market. The company also used the Indian experience to pitch its
brands against major auto companies like Honda and Hyundai.

VW to integrate Indian facilities

Volkswagen (VW), the German auto giant, has gone one step ahead of its European
and Japanese rivals to save cost and make cars more affordable in India.The VW
group will integrate all of its manufacturing facilities in India to contain costs and
check on uninterrupted supply of auto parts. This is perhaps the first strategy of its
kind to be seen in the country among global car makers.

Manufacturing plants of Skoda, VW and the new proposed Audi plant would be
designed in such a way that it can produce cars of any of the group companies. The
VW group owns the Skoda and Audi brands. The current models of Skoda Auto
including the Fabia, Laura, Octavia, Superb and future launches such as the Roomster
(MPV) and Yeti (SUV) can be produced in VW’s plant in Pune or at Audi’s facility.

VW entry into commercial vehicle market

Volkswagen is gearing up to enter the Indian commercial vehicle market. The firm
has decided to first target the light commercial vehicle and armed forces market with
its range of armoured vehicles, multi-vans and the Caddy pick-up utility vehicles.
The vehicles being imported include the VWLT multivan as an 8-seater armoured
vehicle, the VWLT multivan built as an ambulance and the VW Caddy pick-up. In the
next phase, VW intends to roll out its range of minibuses here.
Later, the firm is also contemplating introducing its range of sports utility vehicles
and passenger cars, including the popular Golf.
The commercial vehicles would be available in both petrol and diesel options. “The
armoured vehicles provide safety according to stringent German armouring protection
standards. These vehicles have been specifically developed to meet the requirements
of police and border control forces, and will provide reliable and secure transportation
for all the security forces,” the sources added.
The ambulances also conform to European standards and regulations. “VW intends to
enter into licensing agreement under which the advanced armouring and ambulance
technologies will be transferred to India.”
VW, it may be recalled, had initially planned to enter India in a JV with the
government. However, the low sales volume forced it to back out of the venture. The
government then joined hands with Suzuki Motor Corp of Japan to form Maruti
Udyog Ltd.

VOLKSWAGEN G-LOCAL STRATEGY

The Group's passenger car business is divided into two Brand Groups. Under the
leadership of the Group, the Audi and Volkswagen brands are responsible for the
results of their respective Brand Group worldwide.
Audi's Brand Group is made up of the Audi, Seat and Lamborghini brands and
places an emphasis on sporty values. The Volkswagen Brand Group is made up of the
Volkswagen, Škoda Auto, Bentley and Bugatti brands and stands for more classic
values. Each brand retains its differentiated brand-image and operates as an
independent entity on the market. Together, the product ranges extend from the low-
consumption 3 litre vehicle to luxury class vehicles. The Group’s commercial vehicle
products are the responsibility of the Volkswagen Commercial Vehicles brand.
Across all its brands, the brand group responded to declining markets with flexible
adjustments of production.

RISK MANAGEMENT SYSTEM. The aim of all business activity is to identify

and exploit opportunities to enhance the value of the business. In this, Volkswagen –
as a Group of companies operating on a worldwide scale – is also exposed to risk. The
responsible handling of global uncertainty forms part of the risk management system
operated by Volkswagen. The object of this system is to identify business risk in a
timely manner and to limit it to such an extent that the economic benefit of the
relevant business activities outweighs the risk.
Alongside the existing reporting and early warning system, the risk situation is
routinely assessed on the basis of written and verbal surveys. The risk management
system is an integral part of Group management practice, and has been assessed by
the Company’s external auditors. Accordingly, it conforms to the requirements of the
German Law governing controls and transparency in business (KonTraG).

eBUSINESS ACTIVITIES enhancing VW’s relation with OEM, Partners &

Suppliers

In close collabouration with its suppliers, Volkswagen has progressed its e-Business
activities begun in 2001 from a B2B marketplace to a B2B supplier platform. The
portal at www.vwgroupsupply.com optimizes the information flow between the
Volkswagen Group and its partners while at the same time creating a stronger link
between supplier and Group processes.
The core of the system is the new “VWGroupSupply” supplier database, which in
future – containing, as it does, all the suppliers to the Volkswagen Group – will
represent one of the largest component supplier listings in the automotive industry. In
it, all suppliers will be able to record their individual calling cards – that is, the range
of products and services they offer to the Volkswagen Group.

The virtual applications, including the "Electronic Supplier Link (ESL)" online
inquiry facility online negotiating online catalogue purchasing "eCAP" capacity
management online standard texts will save time, cut costs and so boost the
competitiveness of the Volkswagen Group. This communications platform now also
integrates other processes, such as technical modifications and invoice processing,
online.

The Volkswagen Group already manages nearly its complete procurement volume of
more than € 50 billion via the Internet.

The internet platform started in early summer of 2000 is up and running. Under the
domain "VW Group Supply.com" the most important components Online Catalogs,
Online Inquiries, Online Negotiations and Capacity Management have already been
introduced to all brands and regions of the Volkswagen Group.

VOLKSWAGEN’S CRM INITIATIVE

The major business challenges that were address through mySAP CRM were
unresponsive customer service and slow reaction times. FAW-Volkswagen
implemented mySAP CRM Customer Interaction Center (CIC) for sales, service, and
marketing. Customers could now reach the company.s customer contact center via
telephone, fax, e-mail, and the Internet on a real time basis and access information
about new products and services. mySAP CRM is tightly integrated with the core
SAP enterprise solution at FAW-Volkswagen to enable communication and
information sharing between customers, service representatives, and the entire
enterprise

Corporate Socail Responsibility at Volkswagen

The signals of the capital markets and stakeholders are clear: social responsibility and
sustainability as keystones of a long-term corporate strategy contribute to the
differentiation of companies in product and capital markets. A total of 40 projects and
initiatives demonstrate how Volkswagen brings together wealth creation and value
orientation for a “win-win” situation. “For us, responsibility and income are two sides
of the same coin,” said CEO of Volkswagen, Dr Bernd Pischetsrieder in his foreword.
Volkswagen orients itself to its own standards as well as international conventions
and encourages the worldwide implementation of human rights and better
environmental protection, e.g. by taking part in the Global Compact.

On the occasion of the UN Earth Summit for Sustainable Development in

Johannesburg in 2002 Volkswagen acceded to the Global Compact and published a
brochure on how the Group implements the 10 principles on environmental protection
and health and safety at work, against corruption and for human rights. For example,
participation in the International Labour Organisation “SafeWork” programme will
help to improve safety at work in the take-off countries of Brazil, Mexico and South
Africa. Volkswagen also involves its suppliers in this, as it does in the “Sustainability
in the Supplier Chain” project. Progress can also be seen in the fight against Aids.
Support for preventive measures and medical care means that the hospital stays of
aids patients in Brazil have been reduced by 95 per cent within 10 years.

To realise the guiding principle of sustainable mobility, Volkswagen cooperates with

governments, environmental associations, unions and academic and research
institutions as well as with other car and oil corporations. Just recently, Volkswagen
was a co-founder of the Alliance for Synthetic Fuels in Europe in Brussels. In a
detailed chapter of the brochure Volkswagen actively deals with the effects of
globalisation. Many examples clearly show that globalisation primarily offers
development opportunities of mutual benefit. By strengthening the management
functions for the integration of CSR and sustainability in the business processes,
Volkswagen will continue to advance its activities for sustainable and responsible
company development.

Volkswagen responsibility for the environment and the climate

Model policy
Volkswagen will be launching a particularly efficient and low-emission vehicle under
the “BlueMotion” label for each model series It started with the Polo and Passat, and
will be continuing with the Golf. These models feature particularly efficient engines,
low-friction tires, longer gear ratios, etc. With their low fuel consumption they will
represent the benchmark in their class.

This strategy is already bearing fruit: With CO2 emissions of 102 grammes per
kilometer, the Polo BlueMotion is the best in its class. Volkswagen has proved that
powerful engines can also be thrifty with the Passat BlueMotion; equipped with a 105
hp engine and consuming 5.1 liter diesel/100 km, this model emits a mere 136
grammes of CO2 per kilometer.

Furthermore, Volkswagen is conducting intensive research into alternative fuels and

has for many years been investing billions in reducing consumption in direct-injection
diesel and gasoline engines.

Volkswagen and bioethanol initiative of volkswagen

Volkswagen has been pressing the case globally for the increasing use of bio fuels
such as biodiesel and bioethanol. As the developer of innovative engine concepts such
as TSI, FSI, and TDI, Volkswagen was quick to see the need for continual
development of modern fuels. The objective throughout is to reduce the use of fossil
energy resources by replacing them with regenerative fuels. This helps to preserve
existing mineral oil reserves and actively contributes to CO2 reduction and protection
of the climate.

Volkswagen's innovative drive concepts are already capable of using an up to ten

percent volume blend of bioethanol in petrol (E10) within the specifications of a
future fuel standard. Volkswagen is promoting the increasing spread of biogenic fuels
with its modern engine technology that is prepared for the use of ethanol blend fuels.
This is an important element in their future-oriented fuel strategy The Golf GT with
its newly developed TSI technology is the prime example of this. TSI combines the
two forced induction concepts, supercharger and turbocharger, in a direct injection
petrol engine. By developing this extremely powerful and economical unit,
Volkswagen demonstrates that E10 blended fuel can already be used in the most
progressive direct injection petrol engines globally.
VOLKSWAGEN’S DESIGN AND MARKET RESEARCH INITIATIVE

With the goal of detecting market tendencies that would allow it to continue being at
the forefront of automobile design and production, Volkswagen group decided to
open its design studio at Simi Valley in Los Angeles California. Set in the north, the
studio was the “base of operations” from which to study the market, mainly the North
American one, and to make proposals regarding the satisfaction with the current
tendencies.

It was the result of intensive market research of Volkswagen the led to the
development of the NEW BEETLE which even in its concept phase won many
awards and accolades in various Auto Shows all over the world.The production line in
its Pubela,Mexico plant was modified within no time to start the production of Beetle
within no time. After nearly 7 years worth of research, studies, previous presentations
and other activities, Volkswagen’s New Beetle is officially introduced as a car for
serial production at Detroit’s Auto Show on January 1998. The public’s welcome
forced the enterprise to revise and change it’s initial goals, which estimated 300 units
per day during the first year, duplicating this number to 600

SWOT ANALYSIS
Strengths
1) VW has boosted quality more than any other carmaker in the past five years,
cutting defects by 60%.
2) Their "family culture", no leading brand.
3) The VW group has the flagship of some of the biggest and most trustworthy brands
in the automobile industry.
4) Strong Procurement department with Sustainability in Supplier Relationships.
5) Strong CSR activities bringing together wealth creation and value orientation.

Weaknesses
1) VW still trails Toyota, Mercedes, Nissan, and Honda in overall quality.
2) VW's cost of capital is relatively higher than Daimler's.
3) VW bungled its communications with investors.
4) It was late in inculcating the policies of Lean and JIT approach that Toyota was
using for many years.
5) Bad publicity due to being sued by GM.

Opportunities
1) Growth potential in the American and Asian markets.
2) Due to its very good results on the stock exchange, VW may expect to attract
numerous new investors
3) Potential decrease in Cost with their Production Strategy.

Threats
1) A softening in auto sales in Europe and South America.
2) Risk of self-cannibalization between VW's brands, like top of the line VW's models
and bottom of the line Audi's.
3) Risk of brand dilution owing to confusion between the VW Passat and the Audi
A4.
4) Ever increasing fuel costs.

Group Strategy in 2015

A clear, long-term orientation is essential for making decisions on short- and medium-
term measures. In view of this, Volkswagen has geared its operating policies towards
sustainable market success and income generation as part of the Group Strategy 2015.
Transparent and uniform processes throughout the Group are designed to bring about
shorter development, vehicle order and throughput times, to increase the efficiency of
capacity utilization in the plants and to boost the effectiveness of the distribution
network. In future, the Volkswagen Group will focus exclusively on its core areas of
competence. In all other areas, it will work together with external providers on the
basis of agreements governed by mutual trust, contracts or company law. The
financial targets of the Group Strategy 2015 for the Automotive Division include an
ROI of at least 9% and an operating return on sales before tax of 6.9%. Further targets
are:
1. The Volkswagen Group to be the world leader in terms of customer
satisfaction, quality and delivery performance.
2. The brands and their products to be clearly and separately positioned in the
market.
3. Volkswagen want to become employer of choice for extremely competent and
highly motivated employees and the cooperation partner of choice for high-
performance suppliers and dealers.

ANNEXURES

1. NAFTA

Annex 300-A: Automobiles (one of the most sensitive areas in the NAFTA
negotiations, in spite of the fact that there is already considerable integration between
the three countries. Major concern the possibility that European and Japanese
producers could use Mexico as an export platform to the United States and Canada)

Focused on the liberalization of Mexico’s 1989 Auto Decree, because the Canadian
and U.S. auto industries were already liberalized and integrated.

Gradually removes Mexican trade barriers and investment incentives as well as other
performance requirements (link imports to the use of domestic products and exports):

• domestic content: 36% to 34% by 1998, 29% in five years, and 0 in 10 years
• trade balancing requirement from: $2 of car exports for every dollar’s worth of
imports to 0.80, then to 0.55 in 2003, and eliminate it by 2004
• eliminate quota on new-car imports, but manufacturers are required to produce
in Mexico in order to sell there, for ten years.
• Rules of origin, from 50 per cent in FTA to 62.5 percent (net cost method and
tracing test). Tracing test considers a foreign assembled automotive good 100
percent North American if it has more than a 50 percent domestic proportion
of value added of one partner country (this part could be 49 per cent of the
final good) and if it is combined with an assembly that also has more than a 50
percent regional content. The rule is applied to the value of 69 parts—engines
and transmissions—and is subtracted when calculating the net cost of the
vehicle.
• North American investors may invest up to 100 percent in Mexican suppliers
of parts