Volkswagen AG

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Volkswagen AG

also known as: vw

founded: in 1937 by adolf hitler with ferdinand porsche as the gesellschaft zur vorbereitung des volkswagens (company for the development of people's cars)

Contact Information:

headquarters: berliner ring 2
wolfsburg, d-38436 germany phone: 49 536190 fax: 49 5361928282 url: http://www.vw.com

OVERVIEW

The number-one automobile maker in Europe, Volkswagen AG manufactures under the following brands: AUDI (Germany); SEAT (Spain); and SKODA (the Czech Republic). The company's vehicle models include the Corrado, Golf, Jetta, Passat, Polo, and Vento. Its markets have included Europe, Brazil, China, Mexico, and South Africa. The company also manufactures and sells commercial vehicles (such as vans) and operates its own auto-financing programs. With years of declining sales and lost market share to the Japanese manufacturers, Volkswagen has made changes in its production, spending, and marketing operations. One example of the company's new focus is the introduction of a new version of the classic Beetle. Volkswagen manufactures approximately 3.9 million cars each year.

COMPANY FINANCES

In 1997 Volkswagen had sales of $62.9 billion and had net income (profits) of $756.7 million, a 72.0 percent increase over its 1996 net income of $440.0 million. In 1995 the company reported sales of $61.3 billion and a net income of $234.0 million. Of Volkswagen's total sales in 1997, 65 percent were in its foreign markets. Germany accounted for 35 percent of 1997 sales.

ANALYSTS' OPINIONS

Many analysts have remained optimistic about Volkswagen's performance, especially with the enthusiasm and demand generated by the new Beetle. In 1996 experts claimed the company was increasing its market share as well as cutting production costs. Earnings for that year were higher than analysts had anticipated. Although the Brazilian market suffered losses, the overall financial picture for the company remained positive as analysts deemed company stock profitable. According to analysts, one reason for the company's income and growth in stock earnings between 1996 and 1997 was the German mark's decline in 1997, which made German products less expensive throughout the world market and increased German exports to other countries.

Volkswagen's performance in the U.S. market suffered for a time; in 1994 the company only sold 49,000 vehicles. Analysts attributed the declining sales to the company's failure to follow the market demand for cars that people wanted to buy, such as sport utility vehicles. In late 1997, however, Automotive World reported that the Porsche company was negotiating with Volkswagen (and other auto companies) to co-produce a sport utility vehicle, a strong indication that Volkswagen was thinking seriously about entering this lucrative market.

So far, the Jetta has been the company's best-selling car in the U.S. market, but the new Beetle could very well break all sales records if the initial reaction to the car is any indication. The company's Puebla, Mexico, factory expects to produce nearly 115,000 of the new Beetles, with approximately 75,000 earmarked for the U.S. market in 1998, according to an Associated Press report. And VW of America's president and CEO Clive Warrilow, quoted in Automotive Industries, thinks the new Beetle will make VW a household word again in the U.S. market. However, the company may first have to overcome a few problems with the automobile. Shortly after its grand debut of the new Beetle, VW was forced to recall all of them due to problems with the car's wiring. This negative publicity followed too closely on the heels of the lingering controversy surrounding the 1996 scandal of Volkswagen stealing trade secrets from General Motors. The two rival auto companies reached an outof-court settlement in early 1997.

HISTORY

German automobile engineer Ferdinand Porsche developed an innovative idea for a small and affordable car. He couldn't find financial support for his idea until he met Adolf Hitler. Hitler had promised the German masses an affordable car, and so in 1934 Hitler created the Gesellschaft zur Vorbereitung des Volkswagens, or Company for the Development of People's Cars.

By 1937 a factory, as well as housing for the workers, was established in Wolfsburg, Germany. A German government agency implemented a savings plan whereby the workers could put aside small amounts of money on a regular basis with the company promise of receiving a car in three years. The war, however, changed everything. During this time the factory stopped making the people's car and along with other manufacturers, produced military vehicles, arms, warplanes, bazookas, and bombs. The company could not deliver its promise of providing cars for its workers. However, in 1961, one year after going public with VW stock, the company settled claims with 87,000 participants of the savings plan. The war years were a dark era in Volkswagen's history. Because of labor shortages caused by most German males being drafted into military service and the Nazi government's policy of not allowing German women to work in factories, the company used slave labor, mostly Jews and Polish and Russian prisoners of war, many whom died as a result of the harsh conditions.

FAST FACTS: About Volkswagen AG

Ownership: Volkswagen is a publicly owned company traded OTC (over-the-counter).

Ticker symbol: VLKAY

Officers: Ferdinand Piech, Chmn., Board of Management, 59; Bruno Adelt, Member, Board of Management, Controlling & Accounting, 57; Robert Buchelhofer, Member, Board of Management, Sales & Marketing, 54; Clive B. Warrilow, Pres. & CEO, Volkswagen ofAmerica

Employees: 279,892

Principal Subsidiary Companies: Volkswagen's chief subsidiaries include AUDI AG; AUTOGERMA SpA (Italy); SEAT, SA (Spain); Shanghai-Volkswagen Automotive Co., Ltd. (China); SKODA, Automobilova (Czech Republic); and Volkswagen deMexico, SA de CV.

Chief Competitors: The company's chief competitors include: Daimler-Benz; Ford; and General Motors. Its other competitors include: Honda; Toyota; Fiat; BMW; Volvo; and Chrysler.

By the end of the war the plant was almost completely destroyed by the bombings. In 1948 the British occupation authorities appointed Heinz Nordhoff to manage the company, and a year later the company was turned over to the German government. Throughout the 1950s the company produced thousands of its famous Beetle cars, which it exported to many markets including the United States. By the 1960s the Beetle seemed to be everywhere, and by 1968 it had become the bestselling car in the world.

The 1960s also saw the company expand, and its stock began to be sold to the German public. The company also bought Auto Union (Audi) in 1966. However, by the mid-1970s the Beetle was going out of fashion, and for a time the company suffered tremendous losses during the transition period when it introduced new models to the market. But by the end of the decade its new models were selling well. The 1980s and 1990s brought several international expansion opportunities to Volkswagen. Among these were a car partnership in China, the purchase of 75 percent of automobile maker SEAT, and the merger of VW's Brazilian unit with Ford's Argentine operations (dubbed Autolatina in 1987). The company also constructed the biggest auto plant in China in 1990 and purchased SKODA as well. In 1991 Toyota began selling Volkswagen cars in Japan.

STRATEGY

Volkswagen's strategy, unlike that of most American automobile makers, has concentrated on producing a select group of vehicles. In other words, Volkswagen produces large numbers of the same model year after year. The company has also strategically reduced its prices in Europe in an attempt to gain a larger market share there. Because the German autoworker has been one of the highest paid in the world, Volkswagen's strategy includes producing a line of luxury cars, thus using the high labor costs to its advantage. These cars will compete directly with Mercedes-Benz and will be 20 percent less expensive than Mercedes automobiles. Volkswagen proved its determination to produce luxury cars in early 1998 when it began a bidding war with rival BMW to acquire Vickers' Rolls-Royce.

In June 1997 the company implemented a new manufacturing strategy to increase productivity and reduce production costs. Workers in its Resende, Brazil, plant are given flexible job assignments, and work together in production teams to increase employee solidarity. The strategy also involves continuous worker training and reduction of its inventory (basing inventory on car orders, thus reducing the costs of maintaining large inventories), and allows the plant's suppliers to actually work in the plant. The company plans to implement these production concepts in its SKODA plant in the Czech Republic.

INFLUENCES

As noted above, the company's more recent strategy is largely the result of German labor conditions. Impaired by high labor costs and the inability to lay off unneeded workers due to strict labor laws, VW has had but one viable option: to focus on volume. In doing so, the company has reduced the number of models it makes to decrease production costs, but maintain profits. To increase profits, the company began producing higher-end models, which raised unit sales by 36 percent in 1994 and was responsible for half its profits. The company's strategy of limiting the models it produces has had a downside, however. The public may not want to buy the models the company offers. This scenario, along with stiff competition from the Japanese auto makers, is what caused Volkswagen's poor sales in the U.S. market in the early 1990s. If the new Beetle does well in the United States and elsewhere, the company's strategy of offering its various markets fewer model types will again be vindicated.

CURRENT TRENDS

Following the trend of foreign auto manufacturers to build manufacturing facilities in the United States (Volkswagen actually was the first foreign auto maker to build a plant there, but closed it in 1998), company chairman Ferdinand Piech is seriously thinking about building a VW-Audi plant in the United Statees, provided that VW global sales reach the $5 billion mark. Piech told Automotive News in February 1998 that he expected his company's sales to reach this goal by 1999. With the growing importance and versatility of the Internet, Volkswagen announced that it had participated in the development of an on-board automobile computer, which will be able to dial onto the Internet for email and get route guidance, among other things. The system, developed by Visteon Automotive Systems and Microsoft Inc., will use Microsoft Windows CE operating system. PSA Peugeot Citroen is also participating in developing the system.

VW has also explored the possibility of selling its cars via the World Wide Web. However, the company received negative backlash from the independent Volkswagen dealers who feared that they would lose customers and sales. To alleviate their fears, Volkswagen has proposed that the dealership closest to the online purchaser would receive the credit for the sale. And to reinforce the concept of web purchases as the wave of the future, the company has assured local VW dealerships that they would indeed benefit from big returns from the web sales with virtually no investment. As of mid-1998 however, only VW auto accessories were available through Volkswagen's web site, but company officials had expected to make cars and car parts available by the end of the year.

PRODUCTS

The company manufactures the following car models under its own name: Beetle, Caravelle, Golf, Jetta, Passat, Polo, Taro, Transporter, and Volkswagen. Under the Audi name it manufactures the Audi, the A4, the A6 and the Cabriolet. Its SEAT operation manufactures the Cordoba, Ibiza, and Toledo models. Under the SKODA name it produces the Arosa, Felicia, Forman, and Octavia models. The company also offers consumers an auto-financing plan.

CHRONOLOGY: Key Dates for Volkswagen AG

1934:: Ferdinand Porsche, with Adolf Hitler's help, creates Gesellschaft zur Vorbereitung des Volkswagens
1937:: A factory and housing for the workers is built
1945:: The British occupation forces operate the plant and restructure it to focus on military, rather than passenger vehicles
1959:: A U.S. advertising firm coins the name "Beetle" for the Volkswagen
1960:: Volkswagen stock is released to the public
1966:: Buys Auto Union (Audi)
1968:: The Beetle hits its production peak of 400,000 units
1973:: The one millionth Volkswagen is produced
1985:: The Beetle leaves the European market but is still manufactured in Mexico and Brazil
1986:: Volkswagen buys a controlling share of the Spanish engine manufacturer SEAT
1987:: Toyota and Volkswagen sign an agreement to manufacture and sell Volkswagens in Japan
1998:: Volkswagen debuts the new Beetle at an auto show in Detroit, Michigan

GLOBAL PRESENCE

Volkswagen AG has manufacturing plants in Europe, Africa, Asia, and South America. The company began its international venture in the 1970s when it built a factory in Puebla, Mexico, which has now become the Beetle Capital of the World. In 1984 it expanded its international operations when it undertook a joint venture with a Chinese firm, which culminated in 1990 when it built China's largest auto company. VW also began operations in Spain with its purchase of most of the Spanish auto company SEAT in 1986, and it merged with Ford's Argentine company in 1987. In the 1990s it bought a large stake of Czechoslovakia's SKODA company. It also has a subsidiary in Italy. Currently, the SKODA plant makes family cars and SEAT makes sports cars. To increase its global presence, Volkswagen has given serious thought to manufacturing in India. The company's chief concern, however, has been the quality of Indian components, which Indian laws require foreign companies to buy.

EMPLOYMENT

Volkswagen AG employs people in the United States, Mexico, Germany, China, and other countries. In a March 1998 interview in Automotive Industries, Volkswagen of America president and CEO Clive Warrilow offered insight into the company's corporate culture, at least in the United States. He stated that his company only has four layers of management and that his own management team consists of only 19 people. He also said that VW of America does not have regional offices; instead, managers are divided into area teams. Everybody works from home, and the teams are given as much autonomy as they want. According to Warrilow, managers don't wear ties; the company has a laid-back attitude and eschews such outward signs of hierarchy as private offices.

SOURCES OF INFORMATION

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