Volkswagen Ag – Operating Environment

The Volkswagen group has its headquarters in Wolfsburg, Germany. With around 350,000 employees and annual deliveries of more than 5 millions vehicles Volkswagen is Germany’s leading automobile manufacturer and therefore belongs to Europe’s main leaders. Volkswagen runs 58 production plants worldwide and sells cars in over 150 countries. Main regions to sell apart from Europe are North America and China.

The business is divided into two different sectors:

1.The automobile sector, which includes the two brand sectors Volkswagen, with Bugatti, Skoda and Bentley and the Audi group including Seat, Lamborghini and Rolls Royce. Moreover, there is a sector for commercial vehicles. 2.Another sector is built up by the financial services that contain the Volkswagen Bank, car leasing programs and Europcar vehicle rental.

The main activity is the production and sale of passenger cars which forms about 90% of the business.

The Goal of the Volkswagen group is to return to the world’s leading automobile manufacturers by creating attractive, safe and environmentally sound vehicles. This should be reached with help of a change in the policy that include the idea of a strict defined separation of the different section and moreover of the different brands that may lead to a more independent treatment.

The year 2005 has recorded an increase of vehicle deliveries by 3.2 % up to 5, 24 million which lead to a final turnover of 95, 3 billion euro. Nevertheless the Volkswagen group is said to have missed the connection to the world’s leading automobile companies.

The main competitors and the relative size and position of Volkswagen

Once being part of the leading groups the Volkswagen group is no longer able to keep the track with their competitors like General Motors and Ford that still lead the world market but followed by Toyota that is rapidly closing on GM and forecasted to be the world leader by 2006 already.

Moreover, Fiat, Renault PSA and Citroen, Nissan, Isuzu, Mazda and Honda, DaimlerChrysler, BMW and Porsche, Kia and Hyundai Motors are the other main competitors.

The car market is enormous and because of the huge amount of competitors really dominating the whole market is almost impossible. The whole market can be divided into three regions.

1.The Asian manufacturers have the big advantages of low costs and wages. The cars that are mostly exported are even supported by often weak currencies in the importing countries.

2.US companies, always close to bankruptcy, try to avoid financial fiascos by cutting production capacity and jobs in order to increase the market share.

3.The European car manufacturers are in a quite similar position, facing high labour costs and costs of raw material, trying to cut wages and jobs.

The current market share of Volkswagen worldwide is 12% at the time and therefore is ranked on position number four in the worldwide ranking of automobile manufacturers in regard to produced vehicles in 2005.

PositionCompanyCountryQuantity1.General MotorsUSA8.066.5362.ToyotaJapan6.814.5543.Ford Motor CompanyUSA6.644.024

4.VolkswagenGermany5.095.4805.DaimlerChryslerGermany4.627.8836.PeugeotFrance3.405.2457.HondaJapan3.237.4348.NissanJapan3.190.2199.HyundaiSouth Korea2.766.32110.RenaultFrance2.471.

According to forecasts the current world leading automobile manufacturer General Motors will be replaced by Toyota very soon.

General MotorsGeneral Motors is facing several problems in the current automobile market. The production in North America is characterised by a decline in sales and production mainly caused by the high competition and the burden of too high costs in health programs. In Europe only the affiliate Opel / Vauxhall worked quite well. Main problem in Europe are the high oil prices that lead to the trend to buy petrol-saving cars whilst General motors mostly represents cars with big engines and a high consumption of petrol. Nevertheless General Motors still dominate the automobile market with around 13.4% market share.

ToyotaToyota’s goal on the other hand is to target 15% of the market share worldwide. And the Japanese company is on the right track. Even in Europe, which is known as very difficult at the moment, Toyota has reached a sales increase of 15%. Experts are naming the increasing attractivity, the long guaranties and the low prices as the main reasons for their success. Threats and problems of Volkswagen

At the moment the Volkswagen group is confronted with several problems that may be an advantage to their competitors. •Decisions in the past lead to shortages in working hours but not in payment (Comparison: Toyota has 20% less labour costs than VW)

•The purchase of Bentley, Bugatti and Lamborghini was too expensive and not effective enough, this lead to a neglection of the effective models •Missed trends like Cabrios, off-road vehicles and coupes •Too much is produced in their own fabrics instead of looking for cheap supplier •Overcapacity (Space for 6.2 millions but only 5.2 are sold) •Booming competition from Asia

•On the other hand difficulties in sales in Asia because of the high competition •Risk of prices of raw materials•Upward growth in oil prices

A higher influence of the world market should be provided by an optimized personnel policy. Pischetsrieder, the VW Boss, has already announced that the amount of jobs will be reduced by around 20,000 in the following three years. Additionally, some factories of the single components should be reorganised and partly closed to solve the problem with the over capacity.

Another solution is that Volkswagen should rather concentrate on their original models such as Passat and Golf, since they have always been more successful than relying on new ideas such as the luxury model Phaeton. With help of these methods Volkswagen have a chance to be a part of the world’s leading automobile market in the near future. By reducing the labour costs, reorganising and closing factories that are not effective, cutting jobs and wages and improving activities in foreign countries the new VW president is on the right track.

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