Volkswagen AG Situation Analysis EBA 605, Dr. J. Coleman Saturday, March 11, 2006 Team Maxxim presents

Project Goals & Objectives  Highlight trends in the automobile industry  Analyze and critique Volkswagen recent decisions  Discuss where and why VW went wrong  Offer potential solutions as an objective outsider Volkswagen AG

Presentation Overview  Company Overview  Brand Portfolio  Current Situation  The VW Customer  Competitive Analysis  Financials  SWOT Analysis  Questions Volkswagen AG

Corporate Overview  HQ: Wolfsburg, Germany  US Operations: Auburn Hills, MI  Europe’s #1 automobile manufacturer  Traditional Brands: Jetta, Passat, Touareg, Phaeton, Fox and Audi  International Brands: SEAT and SKODA  Annual production: 5M vehicles  Annual sales: $121,345/ 10.9 YOY growth  Employees: 342,502 worldwide

Volkswagen AG Key Milestones 1930s  Factory opened in Wolfsburg, Germany1940s   Production of first Volkswagen  Company turned over to German government1950s   VW begin building foreign plants  Launched “Beetle” in US market  Developed Microbus1960s  Sold stock to the German public  Purchased Auto Union (AUDI)  US Beetle sales took off 1970s  Beetle discontinued in every country except Mexico1980s  Begin car venture in China  Purchased SEAT  Formed Autolatin in Brazil1990s  Built China’s largest auto plant  Launched Passat  Acquires Rolls-Royce and Bugatti  Launched New Beetle in US2000s  Spent 3.1B to modernize factories  The final Beetle ended a 70-year run  Invested 1.7B in China (Asia/Pacific)  Bernd Pischetsrieder joined company

Volkswagen AG Volkswagen Group Brand Portfolio emotion functionality sophistication zones of low demand zones of low demand

Volkswagen AG Current Situation – Project Basis Porsche increase stake in VW Recently hired Wolfgang Bernhard to head VW group Launched “Moonraker” project Loosing share in China market Pulled out US luxury market VW to cut 20,000 jobs Ferdinand Piech steps down as Chairman*** Triple threat: high costs inflated sticker price questionable quality HIGHS LOWS *** Some may say this is a high given that he engaged VW in High risk, high reward strategies

Volkswagen AG The VW Customer  Positioning Statement: For the cost conscience buyer, Volkswagen offers reliability and value.  Value Proposition: –Target Market: Cost conscience buyer (parents, females, young adults) –Benefits offered: German technology –Relative price: Affordable, reliable

Volkswagen AG The VW Customer Young Female Age College-Educated Parents Aspirational value Global Reach USA, France Spain, UK Germany Italy, China Value conscience

Volkswagen AG Volkswagen Global Marketing Mix  Brand portfolio  Volkswagen  Audi  Seat  Škoda  Bugatti  Bentley  Lamborghini  Commercial vehicles 1  Unique brand identity for each nameplate  Complete product range  Mostly standardized products with minor adaptations  Setting prices with regard to competitors  Price discrimination across regions  No price competition in emerging markets  Strict cost controlling  Glocalized communication  Emphasis on the European market  Brand advertising  Emotionalization  Development of distribution partners  Separated distribution channels for each brand  International standardization of dealers Global Marketing Mix

VW Competitive Analysis Volkswagen AG Golf Jetta New Beetle Passat Phaeton Touareg *Numbers based on 2004 Marke tshare

Volkswagen AG Operating Margin Net Profits

Volkswagen AG 5 Year Sales Trend (in billions) Sales increased by 4.9% in 2004 Shareholders net profits Substantial decrease ’00 to ‘01

Volkswagen AG Return on Equity – Return on Assets 5-year period Reduction in ROE & ROA

Volkswagen AG SWOT ANALYSIS STRENGTHS Market Leaders High Brand Equity Focus on Innovation OPPORTUNITIES New market to explore (India) Auto sales up 30% 2010 India will have 36x more cars Increase disposable income Launch new models WEAKNESS Slow revenue growth Low presence in SUV market Rising admin expenses THREATS Fierce competition Increasing steel prices Decline car sales in U.S. Low consumer spending in Germany

Volkswagen AG Challenges and Risks* Costs Revenue and Costs Revenue and Performance Performance future current Increasing product costs High investments Further price pressures Chinese operations US operations-luxury market $/€ Exchange rates Price pressure Weak economy Depreciation Legislation Investments in future markets Raw material prices Labor costs *Volkswagen AG 2005 Strategy Meeting

Volkswagen AG Thank you!

References  Culp, Eric, “VW in Fresh Trouble as it Withdraws US Model”, Knight Ridder Tribune Business News, 11/05, pg 1  Flint, Jerry, “The Fast and the Furious”, 01/06  Fondon, Daren, “A Pitch to the Rich”, Times Online, 11/03  Hoover’s Company Information, Hoovers, Inc., 2006  Landler, Mark, “Volkswagen Chairman Step Down”, New York Times, 01/06  Landler, Mark, “Porsche to Build a 20% Stake in VW”, Detroit News – Auto Insider/New York Times News Service, 09/05  Power, Stephen, “Once Hot Volkswagen Attempts to Reverse U.S. Sales Decline”, Wallstreet Journal (Eastern Edition), New York, 09/05, pg A3  Rancanelli, Vito J., “Turn Around Ahead at Volkswagen”, Barron’s, 05/05, Vol. 85, Issue 20, pg 26  Thomas, Chad & Archey, Sheenagh, “Porsche Buys 20% in the VW’s Share to Prevent Takeover”, Bloomberg News, 09/205 Volkswagen AG

References  Brodrick, Sean. Set Your Sights On Asia’s Sleeping Elephant.  