STRATEGIC MANAGEMENT

Volkswagen(VW)

SUBMITTED BY

C.S.PRASAD KUMAR (3510920088)

OUR MISSION

VW Autoeuropa strives for excellence in the manufacture of high quality cars in

Portugal, and is perfectly aware of the fact that success, in an ever increasingly competitive
market, depends on this philosophy. What we demand from ourselves reflects this challenge:
integrity, respect for people and their abilities, excellent teamwork, responsibility and autonomy,
leadership skills, excellent professional qualifications, and the commitment to attain a common
goal.

At all levels and in all areas, we are organised in work groups, in which everyone's ideas
are contribute to the continuous search for the best solutions for the proposed objectives. We
firmly believe in personal and professional development. Therefore, we conceived the Personal
Development and Career Plan that allows us to identify and implement concrete measures suited
to the development of each individual. This approach has led, for example, to a considerable
investment in professional training.

OUR VISSION

Autoeuropa - the most attractive Volkswagen plant in Europe. We produce our cars with
highest quality and productivity based on flexible infrastructures and skilled human resources.

HISTORY
It took four years since the signing of the shareholder agreement between VW and FORD in July
1991 until the start of production. During these 4 years one of Europe's most modern automotive
production facilities was built in Palmela, with a total area of around 2 million sqm, including the
Industrial Park where some of the main suppliers have settled. Construction works on the Palmela factory
ran on schedule and all the European standards regarding safety and environmental protection were met.
The plant is divided into four main production areas: Press shop, Bodyshop, Paint shop, and Final
Assembly.

The plant and equipment were designed using advanced technology and incorporating the
latest developments in automation and computerized production control, in order to meet the
high standards required on manufacturing a quality product.

In order to establish the plant's layout, concepts, methods and procedures, several teams
of specialists studied some of the more productive industrial complexes in the world. The best

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features which were found have been used at VW Autoeuropa, making this complex one of the
more competitive, at any level, both in Europe and the World.

Since its inauguration, VW Autoeuropa has been the target of several investment
agreements between Volkswagen and the Portuguese state, namely in the end of 2003 and most
recently, in November of 2007, anticipating the arrival of new models to the plant.

Those investments aimed the settlement of new production infrastructures, equipment

modernization and the training of the employees in order to turn the production lines and
methods each time more efficient and increase the competences of its employees.
VW Autoeuropa's philosophy of continuous improvement has been placing it as one of the
companies of the Volkswagen group in the leading edge in several productivity indicators.

Volkswagen
Ferdinand Piëch has powered Volkswagen to the top slot in Europe. Now he is stepping
down, and troubles are building. What's next? Value Chain Analysis explains VWs reasons for
Success and Concern.

Volkswagen CEO Ferdinand Piëch has every reason to feel satisfied. The Austrian
engineer and scion of one of Europe's most noted automotive dynasties are less than a year from
retirement as chief of the German carmaker. As he looks back, Piëch can boast of one of the
great turnarounds in automotive history. Since taking the top job at the Wolfsburg headquarters
in 1993, his engineering brilliance has helped resurrect Volkswagen quality and turn models such
as the Golf and Passat into all-time best-sellers. Piëch's relaunch of the Beetle has cemented
VW's hold in the U.S. market. Only VW has successfully revived a communist-era carmaker,
Skoda of the Czech Republic. Even now, as the global car industry lurches through a stressful
year, VW expects profits to grow: In 2000, they more than doubled, to $1.8 billion, on sales of
$76 billion.

Yet Piech was stressed. Value Chain analysis suggested two key value activities had driven his
success---product development and operations. It also suggested that two other activities were
becoming serious potential drains on the value chain and value he had so meticulously
driven-----human resource development and marketing and sales.

After he steps down as boss, Piëch wants to be named chairman of VW's supervisory board, a
position that must be approved by a majority of shareholders. If he can goose the stock, Piëch
should be a shoo-in for chairman, a seat that gives him power to influence management and
executive appointments. That could create complications for his successor. "The new CEO will

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have a big handful of challenges," says one former board member. "But the one [challenge] that's
make-or-break will be managing Piëch." But the question remains: Would the continued
presence of Piëch be good for VW? Piëch the engineer has always excelled. "He is completely
focused on the product. He lives, breathes, loves cars," says a former manager of VW's vast
Wolfsburg assembly plant in Lower Saxony. The VW he has revived is in many ways the legacy
of the best of the old Europe. It makes products that are the envy of rivals, employs thousands of
workers for life, and enjoys the protection of the government: The state of Lower Saxony owns
18.6% of VW. Piëch is close to German Chancellor Gerhard Schröder, who as Prime Minister of
Lower Saxony sat on VW's supervisory board. (The Chancellor's office now employs Audis in
its fleet.)

But Piëch the executive will bequeath quite a number of problems to the company's next boss.
VW, Europe's largest carmaker and the fourth-largest globally in terms of vehicle sales, has long
struggled to improve profitability and productivity.

The company's ambitious push to drive the brand up market risks hurting its existing premium
marquee, Audi. VW has far too many highly paid workers at its German plants. Yet politics
prevents a radical restructuring. Many outside shareholders, who have seen the stock stagger
back down to 1997 levels, distrust the numbers they're given by the company. Finally, some
former execs say Piëch cow’s subordinates, squelching debate at VW's top levels.

All these issues loom just as uncertainty is mounting about what will happen next. The
supervisory board, which oversees the management board in German companies, is not expected
to announce a successor--probably Pischetsrieder--until November. Meanwhile, the industry
picture is darkening. Sales are soft in the U.S., Europe, and South America. The last thing VW
needs is a messy transfer of power at the moment it should be building on Piëch's gains.

Product development

But Piëch is driven. Unlike many other auto chiefs, he calls the shots on product design
and engineering. And if you work for Dr. Piëch, you had better get it right. In Wolfsburg,
executives joke that PEP, the acronym for the product development process
(Produktentwicklungsprozess) really stands for Piëch entscheidet persönlich--Piëch decides
himself. And he can do it fast. He is said to have sketched out the Audi's all-wheel-drive system
on the back of an envelope.

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 Without question, those achievements have been considerable. Volkswagen's four main
brands--VW , Audi, Seat, and Skoda--have taken 19% of the European auto market, a gain of
some three points in eight years, mostly at the expense of General Motors Corp. and Ford. Not
bad for a company that eight years ago suffered from quality problems and a paucity of hit
models. In South America, VW vehicles account for one-quarter of car sales, and in China, one-
half. The top VW brands in the U.S. are the Jetta, Passat, and the new Beetle, a remake of the
humble bug so beloved of '60s youth. Part of VW success lies in its quirky features. At night, the
dashboard instruments the driver looks at, such as the speedometer and clock, light up in red,
while those the driver touches, such as the radio, are backlit in blue. "It gives the vehicle some
soul, which many of VW's competitors lack horribly," says Wes Brown, a consultant at Nextrend
Inc., a Thousand Oaks (Calif.) auto-research firm.

Operations

When Piëch isn't drawing up the plans, he's examining them with a gimlet eye. No
screaming, of course: That's not the way for Piëch, an Austrian blueblood. One former
transmission-plant manager said Piëch would tour the factory quietly, reviewing production data
sheets and zeroing in instantly on any numbers suggesting something was amiss in the
manufacturing process. "He's the only person whose very presence on the floor would make my
stomach begin to hurt," says this manager.

Terrifying, yet inspiring. Under Piëch's tutelage, VW sweats the small stuff. Check this
out, says one rival exec: On VW models, the gap between body panels--say between the front
fender and wheel panel--has been cut to 1 millimeter. That puts them in a league with the
industry's best.

Obsession with detail is one reason VW has succeeded so brilliantly in reviving its
fortunes in the U.S., where the VW brand was road kill a decade ago. Last year, VW and Audi
sales in the U.S. jumped 14%, to 437,000 units, for a combined 2.5% market share. That's up
from a microscopic 0.5% in 1993. Although VW trails its Japanese rivals, it's the only European
mass-market carmaker in the U.S.

Human resources management

In 1993, to buy labor peace, he cut the workweek at VW's German plants from 35 hours
to 28.8. That saved 30,000 jobs. But now VW workers can make upwards of $34 an hour. Piëch
is trying to push through a plan to lower the base wages of new German workers and link them
to output instead of hours. If this doesn't succeed, VW threatens to put new projects in places
such as the Czech Republic, where wages are less than one-third German levels. Cutting such a

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deal is turning into a hard slog. The unions concede they need to be more flexible. But they are
resisting management's demands to increase the workweek to more than 40 hours during peak
production without paying overtime.

Investors have long harbored the suspicion that Piëch and his top managers care little for
the margins. As a result, VW stock has one of the lowest price-earnings ratios in the European
auto sector. The government of Lower Saxony, the biggest investor, worries more about jobs
than shareholder value. Five of VW's seven German factories are located in Lower Saxony, and
they're among the least productive in Europe. According to World Markets Research Center in
London, production at the Wolfsburg plant runs at 46 cars per worker per year, compared with
101 at Nissan Motor Co.’s British factory in Sunderland.

Marketing & sales

VW also has gaps in its product lineup. It has nothing to offer in the category of compact
minivans--the scaled-down versions of minivans that are popular in Europe. A sport-utility
vehicle will not come out until 2002. "We're [also] missing some niche models--sports car,
roadster, another convertible," says Jürgen Lehmann, manager of the Autohaus Moltke
dealership in Stuttgart. VW has to sort out these issues while the competition gets tougher.
It all spells a big headache for Piëch's successor. While speculation lingers that
Pischetsrieder might be upstaged at the last minute, the bigger issue is whether he or any new
CEO will be able to set his own strategy and unleash more of VW's earnings potential. At the
least, Piëch's presence in the background will complicate the succession.

Bottom-line, VW’s value chain presents interesting challenges for Piech’s successor,
Bernd Pischetsrieder. Inheriting extra –ordinary strengths in product development and
manufacturing operations, and an impressive market presence world-wide, he faces emerging
value chain weaknesses in other areas he has to tackle.

SWOT Analysis

Strengths:
The strengths of Volkswagen according to the case study are:
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 • Re launch of the Beetle Premium small car model cemented VW's hold in
the U.S. market

• Even though the global car industry lurches through a stressful year, VW
expects profits to grow, in 2000; they more than doubled, to $1.8 billion, on
sales of $76 billion worldwide.

Weakness:
The weaknesses of Olper’s Kheer mix according to their market plan are:

• VW did not have some car models available in the market. The competitors
on the other hand were better prepared for the European market.

• VW was still developing SUV sports utility vehicle while the competitors
took advantage of the market situation.

Opportunities:
Cost of labor could be reduced by opening another plant in Czech Republic

Both American European markets want newer models and increase in variety of
cars

Threats:

• Competitors such as Audi are providing consumer value goods such as

convertibles, minivans, and coupes

• There is a lot of politics which prevents reconstruction of factory workers

VW offers quality cars and they focused on customer wants and

needs. In Operations a lot of focus is done in reviewing production data
sheets and on minuet details on cars. Making sure that the data sheet is
correct, if any figures were out or wrong the corrections would be made.

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 They emphasized heavily on production development and operations
in which they looked for minuet details in order to make the car perfect in
every way. They also started to add features to make them have eye
catching.

Human resource development marketing and sales. Workers hours

were cut down, there were too many workers in German auto sector, and if
they could assemble in Czech Republic the labor would have been cheaper.
Cars were not available such as Minivans, SUVS, Etc. So overall there was a
potential marketing gap.

Introduce new cars and product lines in order to fill up market gap for
Minivans, convertibles, SUVS and etc. USA is a large market they should
introduce more models to existing three models already launched.

They should either downsize their workers or reduce the work hours.
Overtimes works should be reduced to only those particular days when the
production is high.

Other than that they could assemble and set up manufacturing industries in
other places of the world, such as Czech Republic where labor is much
cheaper, so their cost of production can be reduced overall.

Volkswagen began introducing an array of new models after Bernd

Pischetsrieder became Volkswagen Group CEO (responsible for all Group brands)
in 2002. The sixth-generation VW Golfwas launched in 2008, came runner-up to
the Opel/Vauxhall Insignia in the 2009 European Car of the Year, and has spawned
several cousins: VW Jetta, VW Scirocco, SEAT León, SEAT Toledo,Škoda
Octavia and Audi A3 hatchback ranges, as well as a new mini-MPV, the SEAT
Altea. The GTI, a "hot hatchback" performance version of the Golf, boasts a
2.0 L Turbocharged Fuel Stratified Injection (FSI) direct injection engine. VW
began marketing the Golf under the Rabbit name once again in the U.S. and
Canada in June 2006. (The GTI had arrived to North America four months earlier).
The fifth-generation Jetta, and the performance version, the GLI, are also available
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in the United States and Canada. The sixth-generation Passat and the fifth-
generation Jetta both debuted in 2005, and VW has announced plans to expand its
lineup further by bringing back the Scirocco by 2008. Other models in Wolfgang
Bernhard's (Volkswagen brand CEO) "product offensive" include the Tiguan mid-
sized SUV in 2008 and a Passat Coupé. In November 2006 Bernd Pischetsrieder
announced his resignation as Volkswagen Group CEO, and was replaced
by Audi worldwide CEO Martin Winterkorn at the beginning of 2007. Winterkorn
is credited with making Audi a challenger to the dominance of BMW and
Mercedes, and his design-led strategy has led to Audi being considered one of the
most important brands in the world. Nevertheless, Volkswagen continues to have
complicated relations with both unions and shareholders. The German state
of Lower Saxony owns 20% of the stock.

The B5.5 fifth-generation Passat facelift

In North America, VW faced many challenges. After rising significantly
between 1998 and 2001, VW's North American sales began to fall sharply leading
to a 2005 loss of roughly US$1 billion for its operations in the U.S. and Canada.
Profitability has not been strong, and the lack of reliability of the company's cars
appears to bear some of the responsibility for this situation. By 2005, its models sat
near the bottom of Consumer Reports reliability ratings, and J.D. Power and
Associates ranked VW 35th out of 37 bands in its initial quality survey. Attempts
to enter a new market segment also compromised Volkswagen's standing in North
America. In 2002, Volkswagen announced the debut of its Phaeton luxury car,
which was critically acclaimed but not well received in the marketplace. VW
announced its discontinuance in the U.S. market for the 2007 model year due to the
disappointing sales.

The 2006 Jetta

Volkswagen in 2005, despite challenges, still maintained North American
sales of 224,195—a dramatic increase from the low in 1993 when US sales totaled
only 49,533 vehicles. Momentum continued for fiscal 2006, as VW's North
American sales for the year were 235,140 vehicles, a 4.9 percent increase over

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2005, despite a slump in domestic North American manufacturer's sales. VW plans
to close out the decade with the release on several new vehicles worldwide and a
barrage of advertising. In conjunction with the introduction of new models,
production location of Volkswagen vehicles also underwent great change. The
2007 Eos, a hardtop convertible, is produced in a new facility in Portugal. All
Golf’s/Rabbits and GTIs as of 2006 are manufactured in Wolfsburg, Germany,
rather than VW's Mexican factory in Puebla, where Golf’s and GTIs for the North
American market were produced from 1989 to 1998, and the Brazilian factory
in Curitiba, where Golf’s and GTIs were produced from 1999 to 2006.
(The Jetta has primarily been made in Mexico since 1989). VW is also in the
process of reconfiguring an automotive assembly plant in Belgium. The new
models and investments in manufacturing improvements were noticed immediately
by automotive critics. Favorable reviews for VW's newest cars include the GTI
being named by Consumer Reports as the top sporty car under $25,000, one of Car
and Driver magazine's "10 Best" for 2007, Automobile Magazine's 2007 Car of the
Year, as well as a 2008 Motor Trend comparison ranking the mid-size Passat first
in its class. The J. D. Power and Associates 2006 Automotive Performance,
Execution and Layout (APEAL) Study scored Volkswagen fourteenth overall with
strong performances by its new Jetta and Passat models.

The fifth-generation Golf, sold in North America as the Rabbit.

Volkswagen is recognized .As one of the leading small diesel
engine manufacturers, and is partnering with Mercedes and other companies to
market Blue Tec clean diesel technology, calling it Blue Motion. Volkswagen has
offered a number of its vehicles with a TDI (Turbocharged Direct Injection)
engine, which lends class-leading fuel economy to several models. According to
the United States Environmental Protection Agency, four of the ten most fuel-
efficient vehicles available for sale in the U.S. in 2004 were powered by
Volkswagen diesel engines. They were a three-way tie for 8th (TDI Beetle, TDI
Golf, TDI Jetta) and ninth, the TDI Jetta Wagon. As of 2007, VW has not yet
offered a gasoline/electric hybrid power train such as that in the Toyota
Prius (though a diesel-electric hybrid 5th generation Jetta was produced as a test

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vehicle). In addition, all Volkswagen TDI diesel engines produced from 1996 to
2006 can be driven on 100%biodiesel fuel. For the 2007 model year, however,
strict U.S. government emissions regulations have forced VW to drop most diesels
from their U.S. engine lineup, but a new lineup of diesel engines compatible to
U.S. standards are due for 2008.

The 2006 Eos hardtop convertible

Volkswagen long resisted adding a utility vehicle to its lineup, but it finally
relented with the introduction of the Touareg in the early 2000s, sharing major
components with the Porsche Cayenne and Audi Q7 sport utility vehicles. Though
acclaimed as a fine handling vehicle, the Touareg has been a modest seller at best.
Some automotive analysts blame the Touareg's absence of a third-row seat, the
relatively poor fuel economy, and the high vehicle mass. VW plans to add a
compact SUV with styling influences from its "Concept A" concept vehicle. On 20
July 2006, VW announced that the new vehicle would be called the Tiguan. Since
the discontinuance of the T4 in 2003 and decision not to bring the T5 to the US
market, it was ironic that Volkswagen lacked a van in its North American
lineup considering that VW was a major player in the development of the class
with its original Transporter. The firm did however launch a
rebadged DaimlerChrysler named the Volkswagen Routan for the U.S. and
Canadian markets in 2008. Owing to technical difficulty adapting the Polo to meet
North American vehicle regulations, VW presented in 2006 the "Iroc" as a concept
of the proposed 2009 Scirocco as a potential new small model.
In September 2006, Volkswagen began offering the City Golf and City Jetta only
for the Canadian market. Both models were originally theMk4 Golf and Jetta but
were later replaced with the Brazilian versions of the Golf Mk4 and Bora. The City
Golf and City Jetta were introduced to compete with the Toyota Yaris and Honda
Fit. Volkswagen's introduction of such models is seen as a test of the market for a
subcompact and, if successful, may be the beginnings of a thriving subcompact
market for Volkswagen.
When Martin Winterkorn became the eighth postwar CEO of Volkswagen, the
company made several personnel changes in Wolfsburg. Though the VW Group

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already had their presence in India with Škoda Auto, Volkswagen introduced
the Passat and Touareg with TDI engine to India's automobile market in September
2007.
The VW 1L will be available in 2010, in limited numbers. The 1L is a
lightweight two-person vehicle made out of a magnesium frame covered by an
unpainted carbon-fiber skin. Every component of the vehicle is intended to reduce
the vehicle's weight. Aluminum brakes, carbon-fiber wheels, titanium hubs, and
ceramic bearings all contribute to the vehicle's light weight of a mere 290 kg. To
reduce the weight even further, and to increase the aerodynamics of the vehicle,
there are no rearview mirrors. Instead, the car is equipped with cameras that
display visual information to the driver through the internal LCD screen. The car is
extremely fuel-efficient; each gallon of fuel will take you over 235 miles. The fuel
tank holds just 1.7 gallons, making the entire travel distance capability about 400
miles per tank. Its top speed is 120 km/h (75 mph), which although not very fast is
a welcome tradeoff for the huge savings in fuel consumption .On 15 July 2008
Volkswagen, announced that they will construct an automobile assembly plant
in Chattanooga, Tennessee. This plant will produce cars specifically designed for
North America beginning with the New Midsize Sedan, which will be more
competitive with North American market leaders Toyota Camry and Honda
Accord. Production is scheduled to begin in early 2011 and is expected to end
more than five years of losses in the world's largest auto market.
In 9 December 2009, Volkswagen AG and Suzuki reached a common
understanding to establish a close long-term strategic partnership. Volkswagen will
purchase 19.9% of Suzuki’s issued shares.
In February 2010, Volkswagen announced the latest Polo Blue
Motion model with a 1.2 liter TDI three-cylinder common rail diesel engine rated
at 75 PS and 133 lb ft of torque from 2000 rpm. This model emits 91g/km of
CO2 and has a combined cycle fuel consumption of 80.7 mpg.

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