1. Marketing Strategy Recommendation
Team Maxxim
presents
Volkswagen AG
Marketing Strategy Recommendation
EBA 605, Dr. J. Coleman
Saturday, April 22, 2006

2. Agenda Current Situation & Trends Performance Review Key Issues
Objectives
Marketing Strategy
Action Plan
Projected Profit-and-Loss Statement
Controls
Contingency Plans

3. Market Situation
Mature passenger car market in North America and Europe
Sales expected to rise 0.6% and 1.6% for North America and Europe, respectively, through 2009
Global passenger car sales are forecast to grow by around 7 million units through 2009, or just under 3% annually
India and China is expected to account for more than half of this growth

4. Car Sales According to Groups, Worldwide
Mil. Vehicles GM
8.2
Ford/Volvo
6.8
Toyota/Daihatsu
6.7
Volkswagen
5.2
DaimlerChrysler
4.7
PSA
3.4
3.0
Honda
2.9
Nissan
Weitere:
Hyundai Konzern: 1,93 Mio.
Suzuki Konzern: 1,21 Mio.
Mazda Konzern: 1,10 Mio.
Mitsubishi Konzern: 1,03 Mio.
2.5
Renault
1.9
Fiat/Ferrari
1.2
BMW
Source: manufacturer`s data, JAMA.

5. Global Competitive Overview
*Numbers based on Marke tshare

6. WORLD CAR POPULATION Greater Demand & Less Resources
Developing World = 300% Increase Between 1995 & 2020
Greater Demand & Less Resources
Accelerated Greenhouse Emissions
Environmental & Energy Trends = Negative Economic Impacts
This slide shows the worldwide growth in automobile population. In North America and Western Europe, the growth in automobile population is roughly equivalent to the growth in human population. But in the developing world, growth is almost exponential because of expanding economic growth. So business will be good, and none of us will have to switch careers in order to make a living.
This accelerated growth in the world’s automobile population is accelerating the pressure on finite oil reserves. Experts have been predicting a decline in oil supplies for the last 50 years, and they just keep finding new fields and pushing the envelope forward. But we all know the problem of basing the prospects for future events on past events. If that worked, then healthy people could drop their insurance, train-wrecks that haven’t happened yet, never would, and we would always have plenty of petroleum reserves. There have been no major new oil field discoveries since 1988, and today, the best estimations are that we can expect to see a permanent global decline in oil production within 15 to 20 years - which doesn’t stack up very well against the growth in demand.
Another pressure for change centers on greenhouse emissions, global warming, and climatic change. From the last ice age until the industrial revolution in the last century (~10,000 years), the atmospheric level of CO2 had varied only about 5%. But beginning with the industrial revolution and projecting forward to 2030, the amount of atmospheric CO2 will have doubled - all in about 150 years time. Global warming and the resulting climatic changes are about as close to proven as something like this can be, and the post-industrial increase in greenhouse gases looks like the culprit. One of the biggest single contributors to the rise in greenhouse gases is the burning of fossil fuels. With hydrocarbon fuels, C02 emissions are roughly proportional to the amount of energy consumed, so a reduction in energy consumption naturally reduces CO2 emissions.
So when we look at the entire picture, there are compelling reasons for a switch to more efficient transportation technologies. And one doesn’t have to subscribe to the Malthusian meltdown theory in order to appreciate it. Ultimately, the justification comes down to the task of insuring economic stability over the long haul. The economic ramifications of mounting environmental problems, changing weather patterns, and future monopolies and instability in energy supplies could be enough to threaten the very foundations of our industrialized societies. It’s in our own interests - it’s just good business practice - to create a more energy efficient and sustainable system. And I think it even makes sense in terms of profits.

7. Competitive Situation
General Motors, Nissan and Toyota have cut into Volkswagen’s market share
Volkswagen once held a 50% market share in China, it’s now around 20%
China and India both serving as key manufacturing locations with major players

8. Volkswagen Group Market Share - 2005

9. Corporate Overview
HQ: Wolfsburg, Germany
US Operations: Auburn Hills, MI
Europe’s #1 automobile manufacturer
Annual production: 5M vehicles
Annual sales: $121,345/ 10.9 YOY growth
Employees: 342,502 worldwide

10. Key Milestones 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s
Factory opened in
Wolfsburg, Germany
1940s
Production of first Volkswagen
Company turned over to German government
1950s
VW begin building foreign plants
Launched “Beetle” in US market
Developed Microbus
1960s
Sold stock to the German public
Purchased Auto Union (AUDI)
US Beetle sales took off
1970s
Beetle discontinued in every country except Mexico
1980s
Begin car venture in China
Purchased SEAT
Formed Autolatin in Brazil
1990s
Built China’s largest auto plant
Integrate Skoda
Acquires Rolls-Royce and Bugatti
Launched New Beetle in US
2000s
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

11. Volkswagen Global Marketing Mix
Brand portfolio
Volkswagen
Audi
Seat
Škoda
Bugatti
Bentley
Lamborghini
Commercial vehicles
Unique brand identity for each nameplate
Complete product range
Mostly standardized products with minor adaptations
Development of distribution partners
Separated distribution channels for each brand
International standardization of dealers 1
Setting prices with regard to competitors
Price discrimination across regions
No price competition in emerging markets
Strict cost controlling 2
Global Marketing Mix 4
Localized communication
Emphasis on the European market
Brand advertising
Emotionalization 3

12. Financial Services Division
Volkswagen Group
Automotive Division
Financial Services Division
VW Brand Group
Audi Brand Group
Commercial Vehicles
Other Companies
Financial Services
Europcar
VW P Cars
*Passat
*FOX
*Jetta
*Beetle
*Golf
Skoda
Bentley
Bugatti
Audi
SEAT
Lamborghini
Buses and Vans
Financing
Servicing
Dealer & Customer Financing
Leasing
Insurance
Fleet business
Rental Business
Source:

13. Key Issues
Extreme global competition, particularly from American and Asian manufacturers
Slow revenue growth due to inflated cost of raw material and rising administrative costs
Stagnant demand because of overcapacity and product proliferation in western markets
Controlling cost while simultaneously generating revenue
Rapid foreign investment in Chinese and Indian markets

14. How do we tackle these issues?.....

15. Increase operating cash flow Increase sales and market share
Objectives
Increase operating cash flow
Increase sales and market share
Expand targeted-market segment
Maximize fuel efficiency
Be first to market with new product
Introduce hybrid vehicle, Ŝkoda Octavia, in India
Conduct financial feasibility study
Volkswagen AG

16. Financial Feasibility
The text of this press release and the text of the 2005 annual report are available to download from the official Škoda Auto media web site (
For further information please contact:
Evžen Krauskopf
Corporate Communications
Phone:  
Fax:  

17. Financial Feasibility – Labor Costs

18. Financial Feasibility – Labor Costs

19. Financial Feasibility – Labor Costs

20. Financial Feasibility
Reported Annual Income
Statement
Actual
Projected
Currency
2003
2004
2005
2006
2007
2008
2009
2010
2011
Auditor Status
Dollars
Dol
lars
Consolidated
Yes
Scale
millions
Sales revenue
109,394
121,346
112,826
116,211
119,697
123,886
128,842
135,284
142,048 C
ost of sales
97,597
106,992
97,576
100,503
103,518
106,624
109,822
113,117
116,510
Gross profit automotive
division
11,798
14,353
15,250
15,708
16,179
17,263
19,020
22,167
25,538
Gross profit financial services -
Depreciation & Amortization
10,541
9,251
8,352
7,517
7,211
6,920
6,644
6,382
6,133
Distribution costs
9,880
10,291
10,718
11,255
11,845
12,467
13,152
13,876
Administrative expense
2,800
2,852
2,904
3,021
3,141
3,267
3,398
3,53 4
Selling & distribution
expenses
General administration
Other operating income
5,393
5,602
5,819
6,052
6,294
6,545
6,807
7,080
Other operating expenses
3,477
3,162
2,875
2,990
3,109
3,234
3,363
3,498
Operating profit
3,589
4,548
5,029
4,965
5,461
6,598
9,061
11,710
Net Cash Flow
22,339
12,840
12,900
12,546
12,175
12,381
13,242
15,443
17,843

21. Financial Feasibility – Break Even Point

22. Financial Feasibility – Sales Per Year

23. Financial Feasibility – Sales Per Year

24. Weighted Average Cost of Capital
Component
Weight
Cost
Weighted Cost
Common Equity
0.75
$125,000,000
$97,750,000
Debt
0.15
$18,750,000
Preferred Stock
0.1
$12,500,000
WACC
0.1291
$16,137,500

25. Financial Feasibility – Profit/Loss Statement
It will take 2.5 years to recover

26. Marketing Strategy
Enhance regional presence and geographical spread
Increase customer orientation – Leapfrog approach
Niche penetration
Technological differentiation
More efficient use of resources

27. Action Plan Select “premier” dealerships to carry the Ŝkoda hybrid
Develop dealer training programs
Project and sales managers collaborate to acquire new customers and increase customer loyalty
Build awareness of Ŝkoda hybrid through sales promotions and easy financing
Use Volkswagen Group’s brands to increase customer awareness
80% of all new car purchases in India are financed—the global average is 70%

28. Volkswagen Group Brand Portfolio
Sophistication
Zones of
Low Demand
Functionality
Emotion

29. Positioning Statement: For the cost conscience buyer, Volkswagen
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

30. Controls & Contingency Plan
Design service programs that address potential concerns
Continued research and development aimed at product improvements or modifications that appeal to target segment
Increase penetration with market segments and/or distribution intensity

31. The Golden Steering Wheel to the New Škoda Octavia
The new Škoda Octavia won the Bild am Sonntag‘s prestigious Golden Steering Wheel award during a ceremony in Berlin.
The 2nd generation Škoda Octavia has taken first place in the compact and mid-size car category ahead of newcomers such as BMW 1 or Mercedes A Class. Evaluated by the Bild’s jury of 27 judges, the new Octavia has won in three out of eight disciplines: spaciousness, value for money, and finish work. The 27-member jury included renowned car experts as well as celebrity car connoisseurs. At the wheel of the new Octavia there have appeared, among others, former world rally champions Walter Röhrl and Rauno Aaltonen; former Formula One driver Hans-Joachim Stuck; lady-driver Eve Sheer; AvD director Wolfgang Ernst, Duke of Ysenburg and Bündingen; soccer legend Franz Beckenbauer; TV stars Jörg Wontora, Kai Pflaume, Frank Elstner, Caroline Beil, Barbara Schöneberger, Peter Boenisch, or singers Patrick Lindner and Thomas Anders.
The Axel Springer publishing house awarded the Golden Steering Wheel for the first time 29 years ago and since then, it has awarded the trophy annually to the best four new cars of the year. A Škoda model has won the Golden Steering Wheel for the second time in history. In 1999, the trophy went to the Škoda Fabia.
The new Škoda Octavia, launched on the market last spring, continues the tradition of its successful predecessor of the same name. The Octavia has passed the mark of a million cars manufactured since it had been first introduced in The world premiere of the 2nd generatoin Octavia took place at the Paris Motor Show this autumn.

32. Look how roomy….

33. Look at that automatic console!

34. Ŝkoda Octavia Hybrid

35. Ŝkoda Octavia Hybrid

36. References Volkswagen AG
Brodrick, Sean. Set Your Sights On Asia’s Sleeping Elephant.
Culp, Eric, “VW in Fresh Trouble as it Withdraws US Model”, Knight Ridder Tribune Business News, November 2005, pg. 1.
Datamonitor. Volkswagen AG: Company Profile < (October 2004)>
Datamonitor. Volkswagen AG: Company Profile < (October 2005)>
Eisenstein, Paul A. Putting things right at the “people’s car” company. TheCarConnection < January 10, 2005)>
Flint, Jerry, “The Fast and the Furious”, January 2006.
Fondon, Daren, “A Pitch to the Rich”, Time Online, November 2003.
“ForMotion Program and New Model Initiative Generate Significant Increase in Volkswagen's Earnings.” The VWGazette <
(March 7, 2006) >
Hoover’s Company Information, Hoovers, Inc
Landler, Mark, “Volkswagen Chairman Step Down”, New York Times, January 2006.
Landler, Mark, “Porsche to Build a 20% Stake in VW”, The Detroit News – Auto Insider/New York Times News Service, September 2005.
Pischetsrieder, Bernd. “Letter To Our Shareholders.” Annual Report 2005 (March 7, 2006)>
Power, Stephen, “Once Hot Volkswagen Attempts to Reverse U.S. Sales Decline”, Wallstreet Journal (Eastern Edition), New York, NY, September 2005, pg A8
Racanelli, Vito J., “Turn Around Ahead at Volkswagen”, Barron’s, May 2005, Volume 85, Issue 20, pg 26.
“Škoda Reaches Record Sales in March and the First Quarter of 2006.” Škoda Auto < (October 4, 2006)>
Source: adapted from P. Dicken (2003) Global Production Networks In Europe And East Asia: The Automobile Components Industries, GPN Working Paper 7, University of Manchester,
Tierney, Christine. “Teutonic infighting tests VW's resolve to revive operations.” The Detroit News – Auto Insider/The Insiders < (March 14, 2006)>
Thomas, Chad & Archey, Sheenagh, “Porsche Buys 20% in VW’s Shares to Prevent Takeover”, Bloomberg News, September 2005
“Volkswagen announces worldwide sales record in first quarter.” Volkswagen AG: Investor Relations < (April 5, 2006)>
Xinhuanet, “Volkswagen sales in China hit record.” New Age Business < (October 13, 2005)>
Volkswagen AG