Volkswagen: The Assignment Volkswagen executives acknowledge that if they are to triple the number of vehicles sold in the United States they must make cars that appeal to American drivers. A potential stumbling block in Volkswagen's quest for global leadership in the auto industry is the fact that the company unveiled new versions of several key vehicles within the span of just a few months. Historically, one of VW's sources of competitive advantage is its core competence in the design and manufacture of small, fuel-efficient gasoline engines. Diesel engines are another strength; both types of engines offer the kind of money-saving performance that drivers seek when gasoline prices are high. Several VW models also rank high for crash safety.
Given these strengths, why does VW currently only rank third among global automakers? And why has it captured only 3 percent of the U.S. car market? Christian Klinger, Volkswagen Group board member and the executive in charge of sales and marketing for the Volkswagen brand, offers this explanation. "We need the right products and local production," he says. "In the past maybe we had the right product but not the right price. Or the right price and not the right product." Tapping Emerging Markets for Growth Volkswagen's experience in emerging markets helped cement its status as Europe's leading automaker. One example is the 1991 purchase of a 31 percent stake in Skoda from the Czechoslovak government.
In 1992, the Czech Republic split from Slovakia. VW's presence drew TRW, Rockwell International, and other parts suppliers to the region. However, to maintain their low-cost position and ensure quality control, VW and Skoda executives went a step beyond the Japanese-style "lean production" system that emphasizes just-in-time delivery from nearby suppliers. Several different suppliers manufacture components such as seats, instrument panels, and rear axles inside the plant itself. As Skoda CFO Volkhard Kohler explained in 1994, "We have to organize better than in the Western world and use supplier integration. Wages will increase, so we have to find other ways of being cost-effective. Supplier integration is part of the new thinking and what we do here can be a model for the West."
Product Strategy: Jetta Having conquered key emerging markets, VW must now shore up its U.S. business. To accomplish this, executives are determined to "Americanize" VW's cars; the first example of this effort is the 2011 Jetta. Developed at cost of $1 billion, the new model is produced at VW's N80 assembly plant in Mexico City. The new Jetta arrived at dealers in fall 2010 backed by an advertising campaign that emphasized the $15,995 sticker price. The advertising tagline was "Great. For the price of good." The 2011 model is bigger than its 2010 predecessor, and cost-cutting changes were made to the rear brakes and suspension.
Product Strategy: Beetle Industry observers are closely following the launch of the thirdgeneration Beetle. The original Beetle (also known as the Bug) featured an air-cooled engine (no radiator!) that was located above the rear tires. The Beetle was very popular in both Europe and the United States, where about 5 million were sold between 1949 and 1979. In the American market, an advertising campaign created by Bill Bernbach has achieved mythic status in the industry. Bernbach is credited with launching the Creative Revolution by "telling the truth" about cars and encouraging buyers to "Think Small." After VW retooled its German plant for a successor to the Beetle, production was shifted to Brazil.
The Beetle was absent from the U.S. market from in 1979 until 1999, at which time the second-generation Beetle was launched. The United States was the primary target market for the New Beetle, which was produced at VW's plant in Puebla, Mexico. The designers retained the distinctive, iconic profile of the original so the new version was instantly recognizable. It featured whimsical touches such as a flower vase on the dashboard; however, the launch ad campaign promised "Less flower. More power." Other automakers rushed to capitalize on the nostalgia craze that VW was tapping; the BMW Mini Cooper was one notable success. The New Beetle was especially popular with women, but it was discontinued in 2010.
The third-generation Beetle went on sale in the fall of 2011. The new Bug was designed for the global market; besides the United States, China, Europe and Mexico are expected to be key. The new car has a bigger engine and is more sporty in appearance than its predecessor. VW hopes to attract more male buyers while still appealing to women. Product Strategy: Passat As noted in the chapter lead-in, the first cars rolling off the line at VW's new Chattanooga plant were Passat sedans. However, production will soon be shifted to an NMS-"New Midsize Sedan." This entails risks, as David Sargent, a vice president at J.D. Powers and Associates, notes. "Brand-new plants with brand-new models historically have struggled to produce world-class quality. Not to say a plant can't do that, but it's a struggle," he says.
The new plant is also capable of producing diesel-powered cars; however, diesel versions of its current offerings only account for about one-quarter of VW's U.S. sales. Although diesel engines get higher mileage than gasoline engines, they are simply not popular with the majority of U.S. drivers. By contrast, diesels are very popular in Europe. However, it remains to be seen whether VW can change entrenched American attitudes towards diesels, especially since diesel models typically carry a price premium compared to their gasoline-powered counterparts. Christoph Stürmer is a director at IHS Global Insight consultancy. Summarizing the strategic challenges facing Volkswagen, he said, "VW has to get it right. Get adjusted to American standards of what on-theroad quality is. It's a big challenge for a company so deep-dyed German."
Discussion Questions
1. Do you think CEO Winterkorn's pronouncements about 2018 are legitimate goals, or are they "stretch" goals designed to motivate employees?
2. In VW's advertising, the "Das Auto" tagline encourages potential buyers to associate the brand with its German heritage. Is this the right approach for VW?
3. Which rivals present the strongest competitive threat to VW's strategic plans?