Volkswagen AG SWOT Analysis
#INTRODUCTION
After a tumultuous 2015, Volkswagen set new records in 2016. The Diesel scandal had a bitter effect on the brand’s reputation and business and 2016 was an year of realignment when the businesses set new goals before itself and formulated a strategy for a new direction. Even amid fierce competition and a challenging business environment globally, the brand set new records in vehicle sales. However, the operating profit was again affected by some specific issues including the Diesel issue. Volkswagen AG’s business is divided into two different sections or divisions including automotives and financial divisions. There has been growth in its vehicle sales in the Asia Pacific region. However, the investigation in the diesel issue has continued into 2016 increasing the pressure from legal issues. Audi looks the happiest brand in the entire portfolio of Volkswagen AG and apart from record vehicle sales it also saw release of new models in the year 2016. This is a SWOT Analysis analyzing the strengths, weaknesses, opportunities and threats before Volkswagen AG.
- International presence – One major strength of the brand is its international presence. From Europe to North America, South America and Asia Pacific, it is present everywhere. The one brand that has made it most famous worldwide is the Audi. However, Volkswagen passenger cars are also in demand worldwide. In the recent years, its presence in China has increased through partnerships. Asia Pacific market is growing in importance for the automotive brands and Volkswagen is working to increase the number of its dealerships there.
- Brand image – For any major brand, its brand image is one of its most important strengths. Volkswagen is among one of the most popular automotive brands of this world. While, its rand is mainly related with premium and luxury cars like Audi and Skoda, Porsche, Lamborghini etc, the brand also makes passenger cars for the lower end market. Its brand image also helped it bear the shock delivered by the diesel scandal. Brand image proves a critical strength in such times and helps retain sales. In 2016 again, its sales picked up and the credit to a large extent goes to its brand image.
- Large product portfolio – Apart from automotives, Volkswagen sells financial services. Its product portfolio is made of 12 automotive brands, in several of which it has large and controlling stakes. These brands include Volkswagen, Volkswagen commercial vehicles, Audi, Seat, Skoda, Bentley, Bugatti, Lamborghini, Porsche, Scania, Man and Ducati. These brands produce premium vehicle, sports cars, bikes and commercial vehicles. Apart from these, the brand offers financial services which include Dealer and customer financing, Leasing, Direct bank Insurance, Fleet management and Mobility offerings. A large product portfolio can be beneficial in terms of business and can help bear several types of pressures. Sometimes if sales across one brand or product declines, it can again be higher across other category.
- Increased sales worldwide – In 2016, its sales across the world grew. The following chart offers a comparison of its sales across the various brands for 2015 and 2016.
2016 vehicle sales Figs. In 1000s
| VEHICLE SALES | SALES REVENUE | |||
| Thousand vehicles | 2016 | 2015 | 2016 | 2015 |
| Figs. In 1000s | Figs. In 1000s | Figs. In Million in Euros | Figs. In Million in Euros | |
| Volkswagen Passenger Cars | 4,347 | 4,424 | 1,05,651 | 1,06,240 |
| Audi | 1,534 | 1,529 | 59,317 | 58,420 |
| ŠKODA | 814 | 800 | 13,705 | 12,486 |
| SEAT | 548 | 544 | 8,894 | 8,572 |
| Bentley | 11 | 11 | 2,031 | 1,936 |
| Porsche2 | 239 | 219 | 22,318 | 21,533 |
| Volkswagen Commercial Vehicles | 478 | 456 | 11,120 | 10,341 |
| Scania2 | 83 | 78 | 11,303 | 10,479 |
| MAN Commercial Vehicles | 102 | 102 | 10,005 | 9,958 |
| MAN Power Engineering | – | – | 3,593 | 3,775 |
| VW China3 | 3,873 | 3,456 | – | – |
| Other | -1,638 | -1,608 | -58,225 | -56,349 |
Source: Volkswagen Annual Report 2016
- Growing market in Asia Pacific – The brand’s sales in Asia Pacific have grown. Asia Pacific is growing in importance because it has some of the world’s fastest growing economies. China is a very important market for the automotive businesses. The following table shows the number of vehicles sold and sales revenue by various markets
| VEHICLE SALES | SALES REVENUE | |||
| Thousand vehicles/€ million | 2016 | 2015 | 2016 | 2015 |
| Europe/Other markets | 4,635 | 4,524 | 1,38,079 | 1,32,535 |
| North America | 968 | 941 | 35,454 | 35,384 |
| South America | 421 | 540 | 7,973 | 10,148 |
| Asia-Pacific2 | 4,367 | 4,005 | 35,761 | 35,225 |
| Volkswagen Group2 | 10,391 | 10,010 | 2,17,267 | 2,13,292 |
Source: Volkswagen Annual Report 2016
- Focus on technological innovation :– Apart from everything, Volkswagen is focusing on technological innovation to grow its brand and its sales. It is also investing in research for making autonomous cars. VW acquired a stake in German Research Center for Artificial Intelligence (DFKI). At Audi Business innovation center the focus is on developing ideas for urban mobility of the future. Across all its brands and business segments, the brand is investing in innovation for higher customer satisfaction.
- Human resource management – VW is among the largest employers of the world with more than 627,000 employees. It also aims to become one of the most attractive employers in the automotive industry. It was rated at the top in several employer rankings in 2016. Apart from offering a wide array of job opportunities, the brands and companies under Volkswagen AG have created their own tailor made professional development programs.
#Weaknesses:
- Image and reputation tarnished by diesel scandal: The diesel scandal of 2015 had tarnished the reputation and image of the brand. VW continued to feel the effects of the brand till 2017. Dubbed as diesel dupe or Diesel gate the scandal has cost VW billions of dollars. Millions of cars were affected by the scandal worldwide which VW itself accepted. This has tarnished the brand’s image inside and outside US. The brand is still feeling the effects of the business scandal.
- Reduced operating profits due to increased compliance issues: In US, the brand has paid around 25 Billions in fines, penalties and restitution for the 580,000 tainted vehicles. This has had a detrimental effect on the operating profits of the brand.
#Opportunities:
- Growing demand for passenger cars in Asia Pacific:– The demand for passenger cars in Asia Pacific has kept growing. This presents a major opportunity for the passenger car makers. While VW has been able to increase its sales in this market, still the Asia pacific and specifically China and India are vast markets offering bigger opportunities.
- Sustainable technology – Sustainability also provides a major opportunity for the VW brand. Apart from sustainable vehicles and sustainable supply chain, sustainable innovation offer major opportunities for research and investment. Globally, more and more people are interested in sustainable vehicles and sustainable technology. There sales have grown up and it has created new opportunities for the automotive brands.
- Restructuring and partnerships:- Partnerships have helped VW grow in China. It has struck a similar important partnership in US with Navistar. Similar more partnerships across the world and in the Asia pacific regions can help the brand grow faster. Moreover, a large business is often fraught with management issues. While VW has set ambitious plans for restructuring and reorganizing its business since the diesel scandal, the sooner it does it the better it will be for the business’ health.
#Threats:
- Heavy competition:– The competition across the automotives industry has kept growing more and more intense. It is one of the biggest threats before VW in this era. In every segment including the premium segment, the brand is facing heavy competition from rival brands.
- Legal and compliance issues :- Legal and compliance issues are a major trouble for the automotive brands. Recently, VW landed itself into major troubles related to emissions. The legal tussle has cost it more than 25 billion US dollars which shows the level of financial loss a brand might face if it gets into legal issues. Moreover, government and legal oversight has grown across the word causing automotive brands more financial stress.
- Economic fluctuations :- Economic fluctuations in major markets can lead to decline in sales and loss of revenue. The recession was gone long ago but the economic environment remained difficult for various brands under Volkswagen AG. MAN faced difficulties in South America because of decline in demand. However, the demand for commercial vehicles kept recovering in Europe. Situation was difficult in the shipping industry and economic difficulties in developing countries and emerging markets as well as the low prices of oil were also adding to VW’s difficulties. In this way economic fluctuations in the various markets can pose a major threat to VW’s business.
#Conclusion:
Volkswagen has performed amid difficult situation and despite the diesel scandal and other various ups and downs, it became the best selling automotive brand in 2016. It has several major strengths that have helped it sail through difficult tides. However, The Diesel scandal has continued to bother the brand even till now because the hefty fines have continued to eat into its operating profits. Its China partnership has worked and sales have gone up in the Asia Pacific market. With a new strategic direction, the brand may be able to overcome the damage done to its image and financial position by the diesel scandal. However, the need is to restructure for better business management and faster growth.
Sources:
Volkswagen Annual Report 2016
https://fortune.com/2018/02/06/volkswagen-vw-emissions-scandal-penalties/
https://www.volkswagenag.com/en/career.html