Volkswagen: An Introduction
The Volkswagen Group, based in Wolfsburg, Germany, is among the world’s largest manufacturers of automobiles and commercial vehicles. It is also one of the brands in the global automobile industry with the largest product portfolio. Its portfolio includes 12 brands from seven European countries. Apart from that, the company also offers a wide range of commercial services.
The diesel issue also continued to haunt the VW group in 2020. 2020 was a highly challenging year for the company when its sales were heavily impacted due to the pandemic. The company had lower unit sales of automobiles and commercial vehicles, lower sales, and profits than the previous year. Except for the Asia Pacific region, the company experienced a decline in net revenue across all its geographical markets.
Volkswagen has established a strong global footprint with its 118 manufacturing plants and a large network of distributors. It has divided its business into two divisions that include the automotive division and the financial services division. The company is investing in electric mobility and has set ambitious plans for a sustainable future in mobility.
Read more about Volkswagen in this SWOT analysis:
STRENGTHS:
Brand Equity:
Volkswagen enjoys strong brand equity as a leading automobile brand. The company has maintained a strong image and invests in producing quality cars to serve its customers worldwide. Apart from that, the company also focuses on customer service and serves various segments of customers through its large product portfolio.
Volkswagen vehicles are popular across the world in several markets. Apart from the performance of its cars and commercial vehicles, the company’s focus on branding and promotions has also helped it earn strong brand equity.
Technological innovation:
One of the key differentiators in the heavily competitive automobile industry is technology. All the leading brands invest heavily in innovation to maintain their market leadership. Volkswagen spends billions on research and development each year. It is focused on electric mobility. The company is investing in developing superior electric car models to cater to the growing consumer demand worldwide. In 2020, the company spent 13.9 billion Euros on research and development.
Product portfolio:
The Volkswagen Group has a large and diverse product portfolio that caters to diverse segments of customers across various economic classes and geographic regions. VW’s product portfolio includes 12 brands from seven European countries. These brands include Volkswagen, Audi, SEAT, ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN. Apart from these, the company also offers a wide range of financial services. Volkswagen passenger cars are the largest source of revenue for the company followed by Audi, Porsche, and Skoda.
Apart from selling affordable cars for the masses, the company also sells a nice range of premium and luxury cars. This helps the company cater to the needs of diverse segments of customers worldwide. With its large product portfolio, the company also enjoys higher demand worldwide.
Global presence:
Volkswagen is a truly global brand that sells its cars across 153 countries. It has a large network of distributors worldwide that the company utilizes to sell its products globally. Global presence helps the company maintain higher demand and achieve superior sales.
Strong manufacturing network:
Volkswagen has established a strong manufacturing network that produces cars of various brands. Its manufacturing network is spread across more than 30 countries in various contents. The Volkswagen Group operates 118 production plants in 20 European countries and a further 10 countries in the Americas, Asia, and Africa. The Wolfsburg factory is the largest plant in the Volkswagen Group.
WEAKNESSES:
Weakened brand image:
Volkswagen’s brand image has weakened in some areas in recent years. While the Diesel fiasco hit the company hard, its impact is yet not over. Being compliant is important for automobile businesses. In the case of Volkswagen, noncompliance hit the company hard. Apart from losing billions in fines, the company image was also hurt in various markets across the globe.
Growing operating expenses:
The company’s operating expenses have continued to grow, driven by several factors, including higher raw material and labor costs, marketing, and research and development. In 2020, the company’s gross profit fell to 38.95 billion Euros, which was the lowest in the last five years. The cost of sales remains higher since the industry is experiencing higher competition, and the company has to spend more on distribution, human resources, and innovation. Higher costs of raw material and labor cause the profit margins to shrink for automobile brands.
OPPORTUNITIES:
Electrical Mobility:
The demand for electric cars has accelerated during recent years, driven by higher demand for environment-friendly products worldwide. Volkswagen has made it a critical focus area in its business strategy. VW is investing in making its electric cars smarter and providing over-the-air software updates. Since electrical mobility is a critical area, the company has set quite ambitious plans for the future.
AI & other latest technologies:
The automobile industry has experienced several major changes in recent years. Technology has been driving a fast-paced transformation in the automobile industry. All the leading brands invest heavily in the latest technologies like AI and other technologies to make their vehicles smarter and more connected. Digital technology in cars is already driving higher popularity for vehicle models.
Digital marketing:
Digital technology has brought a wonderful set of opportunities for vehicle brands. All the leading vehicle brands invest heavily in digitalization to acquire higher cost efficiency and higher penetration of their markets.
Digital marketing and social media are the core elements driving higher customer engagement and market reach. Volkswagen must invest in digital marketing to maintain its market dominance.
Industry partnerships:
Industrywide alliances for innovation have become common and are helping companies to achieve superior results faster. Volkswagen can partner with the other leading automobile brands to achieve superior results from its R&D projects.
THREATS:
Diesel fiasco:
The diesel fiasco of 2017 has continued to haunt Volkswagen in 2021. The company has not yet been able to emerge from the emissions scandal fully. Volkswagen is still dealing with the financial shock it received due to the emissions scandal. Apart from having caused financial damage, the diesel fiasco has also hurt the company’s image.
Competitive threats:
The level of competition in the automobile industry has intensified a lot, driven by technological and other changes and the growing demand for cars worldwide. There are several strong competitors of Volkswagen in the market. With intensifying competition in the automobile industry, research and development, marketing, and customer experience have grown more expensive. Volkswagen has to spend heavily in all these areas to avoid losing market share. With growing competition, there is always the fear of losing market share and market dominance. Apart from that, competitive threats can also hurt sales and revenues.
Regulatory threats:
The level of regulation of the automobile industry worldwide has grown, and governments are growing the pressure on vehicle brands related to emissions and other operational areas. Volkswagen has already paid a heavy price after the diesel scandal.
With higher regulation of the automobile industry, the operational costs for automobile companies are growing as they have to spend more on remaining compliant worldwide.
A few last words:
Volkswagen is geared for faster growth in the future. The company is investing heavily in research and innovation and the latest technologies to grow the attractiveness of its product portfolio and the brand’s popularity. It has maintained a strong global presence through its large sale and distribution network. However, the level of competition in the industry has grown a lot in recent years and companies need to focus more on marketing, customer experience, and customer engagement to increase sales and revenue. The demand for electrical cars has grown and following the pandemic the level of environmental awareness among the customers worldwide has also increased. Volkswagen is looking forward to expanding its portfolio of electrical vehicles and bringing faster growth. Apart from the other things, the company is also focusing more on compliance following the diesel fiasco. The level of regulation in the automobile industry has grown a lot. Volkswagen is playing cautiously since the diesel scandal cost the company billions. The brand is now trying to transition faster to an environment-friendly future.
Abhijeet Pratap is a passionate blogger with seven years of experience in the field. Specializing in business management and digital marketing, he has developed a keen understanding of the intricacies of these domains. Through his insightful articles, Abhijeet shares his knowledge, helping readers navigate the complexities of modern business landscapes and digital strategies.