Reference no: EM132247031

While most automobile companies talk about bankruptcy, merger, collapse, and liquidation, Volkswagen AG is posting solid earnings. Based in Wolfsburg, Germany, and Europe’s biggest automaker by sales, Volkswagen (VW) managed the global economic recession well by focusing on emerging markets such as China and Brazil and continually reducing costs. VW is the leading auto firm in China, not Toyota or Nissan. VW’s market share in Western Europe rose to 20 percent in 2009 from 17.9 percent a year ago. While shrinking demand for new cars in major markets and high raw-material costs, and unfavorable exchange rates have reduced earnings of most European automakers, VW anticipated these conditions through excellent strategic planning and continues to take market share from rival firms worldwide. The German truck maker and engineering company MAN AG is VW’s largest single shareholder at 30 percent, and its business too has been good. MAN’s third quarter of 2008 saw profit jump 34 percent, lifted by strong sales of trucks, diesel engines, and turbo machinery. VW is currently spending $1 billion to build a new plant in Chattanooga, Tennessee, for the production of a midsize sedan in 2011 with initial capacity of 150,000 cars annually. VW’s plans for 2018 include increasing its U.S. market share from 2 percent to 6 percent by selling 800,000 vehicles annually in the United States. By 2018, VW also plans to export 125,000 vehicles from North America to Europe. VW‘s plans include large expansions at its Puebla, Mexico, plant. While most auto companies are cutting expenses, VW is increasing is 2009 U.S. marketing budget by 15 percent in its Audi AG luxury division. The Audi ads even ran during the 2009 Super Bowl. For all of 2008, VW’s net profit rose 15 percent to 4.75 billion euros and revenues rose 4.5 percent to 114 billion. VW expects flat or even slight declines in 2009 but some of its competitors are incurring billion dollar losses. VW has cars named for climate patterns, insects, and small mammals. Along with the New Beetle, VW’s annual production of 6 million cars, trucks, and vans includes such models such as Passat (trade wind), Jetta (jet stream), Rabbit, and Fox. VW also owns several luxury carmakers, including AUDI, Lamborghini, Bentley, and Bugatti. Other VW makes include SEAT (family cars, Spain) and SKODA (family cars, the Czech Republic). VW operates plants in Africa, the Americas, Asia/Pacific, and Europe. VW holds 68 percent of the voting rights in Swedish truck maker Scania and about 30 percent of MAN AG. VW also offers consumer financing. VW is acquiring Porsche Automobil Holding SE and merging their auto brands into VW. Based in Stuttgart, Germany, Porsche already owns 51 percent of VW but has weakened in 2009 after taking on $12 billion in new debt. VW is in talks with China’s BYD Co. to build hybrid and electric vehicles powered by lithium batteries. Based in Shenzhen, BYD will supply VW with the battery technology. This will be the first automotive partner for BYD, which is one of the world’s largest suppliers of cell phone batteries. VW is building a new assembly plant in Indonesia for $47 million about 1 hour east of Jakarta, the capital. This plant will assemble the Touran and employ about 3,000 persons. Toyota already has a manufacturing plant in Indonesia and dominates that market. Currently many VW vehicles are imported into Indonesia, thus being subject to a 200 percent tariff. VW reported 2nd quarter 2009 earnings of $397 million; the Audi division was the biggest contributor to the gains.

Source: Based on Christoph Rauwald, “VW Earnings Buck AutoIndustry Trend,” Wall Street Journal (October 31, 2008): B3; Christoph Rauwald, “Volkswagen to Raise Output by 2018,” Wall Street Journal (April 28, 2009): B3.

Required

1. Demonstrate what strategy is Volkswagen followed to strengthen itself in a weak economy, justify your answer.

2. Develop a SWOT Matrix for Volkswagen.