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Volkswagen has been successful in managing to both reduce its cost of production by reducing its labor force, and at the same time increasing the number of units produced. What perhaps is even more important, is that the volume of units sold exceeds the number produced whic suggest strong demand for its products and successful marketing on the company's part. Volkswagen has been successful in managing to both reduce its cost of production by reducing its labor force, and at the same time increasing the number of units produced. What perhaps is even more important, is that the volume of units sold exceeds the number produced whic suggest strong demand for its products and successful marketing on the company's part.
-====Regional Focus====+====Capacity====
-Volkswagen in 2006 delivered 5,733,600 units world wide. Of that total, 3,668,161 units or 64% were for the European market. It is important to notice that Europe's new car market in 2006 only rose by +0.7%. Whereas in comparison, new booming markets such as Brazil and China are growing at 14% and 25%. If Volkswagen wishes to remain competetive in these markets and gain footing in the US automarket, it can not hope to be able to compete with the products it manufactures in Europe. First, the Euro is a highly valued currency at the moment which makes exporting for companies from European states more difficult. So Volkswagen can not produce its vehicles in Europe at European prices and hope to sell them competetively in other markets against companies who face much more favorable exchange rates and cheaper costs of labor and production. It is for this reason that Volkswagen has begun to open up new factories in countries like India and Russia so as to better be able to compete in those markets. +Volkswagen in 2006 delivered 5,733,600 units world wide. Of that total, 3,668,161 units or 64% were for the European market. It is important to notice that Europe's new car market in 2006 only rose by +0.7%. Whereas in comparison, new booming markets such as Brazil and China are growing at 14% and 25%. Volkswagen's estimated capacity is 82% and therefore has little room for growth. Volkswagen's management has said that they wish to grow their way out of this problem by increasing utilization of its European plants. As can be seen from the chart though, one sees that Volkswagen also has the majority, over 60% of its production, in Europe. If Volkswagen wishes to remain competetive in these markets and gain footing in the US automarket, it can not hope to be able to compete with the products it manufactures in Europe. First, the Euro is a highly valued currency at the moment which makes exporting for companies from European states more difficult. So Volkswagen can not produce its vehicles in Europe at European prices and hope to sell them competetively in other markets against companies who face much more favorable exchange rates and cheaper costs of labor and production. It is for this reason that Volkswagen has begun to open up new factories in countries like India and Russia so as to better be able to compete in those markets.
-[[Image:Dbrvow.JPG]]+[[Image:Dbrvow.JPG]][[Image:Vwproduction.JPG]]
''Source: Company info'' ''Source: Company info''

Revision as of 19:50, May 14, 2007

Volkswagen AG (Public, FRA:VOW) is one of the world's leading autmobile manufacturers employing 5,720,096 workers and generating revenues of around €105 billion. Volkswagen operates 44 production plants in 12 European countries, as well as six countries in the Americas, Asia, and Africa. Volkswagen being a primarily European company has to deal with European regulations and costs, such as high labor costs and restrictions on emissions.

Volkswagen controls almost 10 percent of the market share world wide in the automotive industry, with strong footholds in its founding country, Germany and through out most of Europe. Volkswagen has also managed to secure a strong market share in China. However, Volkswagen is still strugling to acquire a stronger market share in the United States where it hopes that new financial incentives as well as its ability to be competitive in the newly forming environmentally friendly market will help boost its sales in the States and increase its market share. The fact that Volkswagen has been focused predominantly focused on the European market here will play to its advantage, given the the log standing European preference for smaller more fuel efficient cars.

Recently, Porsche, has announced to increase its share in the company to 31 percent, which according to German law would require an official offer in a bid for complete take over of the company.

The company also faces significant challenges in implementing productivity and cost control intiatives give that the majority of its workforce is unionized. Demands for higher salaries and benefits are not only common but often impossible to ignore.

History

Volkswagen has a long history in the automotive industry. Easily considered Europe's response to Ford founded in 1937, it wasn't until the 17th of February 1972 when Volkswagen's Beetle over took the production record previously held by Ford Motor Company "Tin Lizzy", or Model T, that Volkswagen established itself as a competetive giant. In that same era, as a cultural revolution was taking place in the United States, Volkswagen saw two of its products become icons of the decade, its Beetle and van. Volkswagen has remained the European powerhouse expanding and evolving with the market to this day where it is the automotive manufacturer in Europe. Volkswagen currently produces everything from low-consumption small cars to high end luxury automobiles as well boasting an impressive commercial wing producing everything from pick-trucks, busses, to heavy trucks. Volkswagen currently has production plants in North America, South America, Africa, and Asia as well as in twelve European countries. Also keeping in suit with its major competitors, Volkswagen operates a successful financial division with its own bank.

German Base

Image:Laborbasevw.JPG Source: company info

Volkswagen traditionally is a German company. This affects the company since not only is a portion of the company state-owned, but also a significant amount of the people who both produce and purchase its products are German. This means that not only is Volkwagen as a company very sensitive to any factors affecting Germany's economy, but it is also facing some of the stringiest labor unions and laws in the world.

Products and Services

Image:Vwrevenue.JPG Source: Company info


Volkswagen, Audi, Bentley, Bugatti, Lamborghini, SEAT, Škoda, Volkswagen Commercial Vehicles and Volkswagen Financial Services, Volkswagen Bank GmbH


Image:Vowvol.JPG

Source: Company info

Volkswagen has been successful in managing to both reduce its cost of production by reducing its labor force, and at the same time increasing the number of units produced. What perhaps is even more important, is that the volume of units sold exceeds the number produced whic suggest strong demand for its products and successful marketing on the company's part.

Capacity

Volkswagen in 2006 delivered 5,733,600 units world wide. Of that total, 3,668,161 units or 64% were for the European market. It is important to notice that Europe's new car market in 2006 only rose by +0.7%. Whereas in comparison, new booming markets such as Brazil and China are growing at 14% and 25%. Volkswagen's estimated capacity is 82% and therefore has little room for growth. Volkswagen's management has said that they wish to grow their way out of this problem by increasing utilization of its European plants. As can be seen from the chart though, one sees that Volkswagen also has the majority, over 60% of its production, in Europe. If Volkswagen wishes to remain competetive in these markets and gain footing in the US automarket, it can not hope to be able to compete with the products it manufactures in Europe. First, the Euro is a highly valued currency at the moment which makes exporting for companies from European states more difficult. So Volkswagen can not produce its vehicles in Europe at European prices and hope to sell them competetively in other markets against companies who face much more favorable exchange rates and cheaper costs of labor and production. It is for this reason that Volkswagen has begun to open up new factories in countries like India and Russia so as to better be able to compete in those markets.

Image:Dbrvow.JPGImage:Vwproduction.JPG Source: Company info

Trends and Forces

Revenues and Pre-tax Earnings

Image:Revvw.JPGImage:Ptpvw.JPG Source: Company info

Consumer Trends

Today consumers are moving towards more environmentally friendly and fuel efficient automobiles prompted concerns over rising fuel prices and global warming . J.D. Power and Associates recently conducted an Alternative Powertrain Study to determine the top environmentally friendly vehicles, and impressively, Volkswagen ranked highest among nameplates in the AEI having three of its models represented in the top 30, its New Beetle, Jetta, and Golf. Appealing to consumers' cost consciousness, Volkswagen hopes to achieve even greater success with practical vehicles whose fuel efficiency coupled with their price at purchase makes them highly competitive and Volkwagen hopes that this in turn will increase their market share in key markets such as the United States.

Oil

Since oil is a vital factor of production, reduction in its supply combined with rise in price will hurt the entire economy. Factories, transportation systems, and most industries depend greatly on oil therefore the will have to curb production, incur higher costs, or adopt new production practices where oil is not an essential input. High dependence on oil in production and our daily lives makes us incredibly vulnerable to fluctuations in price change. Companies such as Volkswagen are just as vulnerable since they too depend heavily on oil in their production. More importantly, as oil prices rise, be it as a result of tension and war in the Middle East or merely because of scarcity, consumer preference, should the fluctuations be severe enough, might be affected.

Volkswagen does have an advantage over its American rivals. This is because, as with most European countries, Volkswagen's models generally are smaller vehicles to accommodate to Europe's typically smaller roads. So as the cost for fuel rises, Volkswagen stands the opportunity to gain market share in the United States since consumers will be looking for more fuel efficient vehicles.

Labor

As with any industrial company its size, Volkswagen has a very large labor base. However, this does mean a potential threat to the company like Volkswagen which faces some of the most powerful Unions. This is becausem as a result of both the company doing well and the ever rising cost of living, workers begin to demand more and more concessions from the company in the form of benefits and increased wages. Unions have many weapons at their disposal to help accomplish their goals, perhaps most notably their ability to mobilize strikes against the company. The most recent example of this would be IG Metall's, Germany's largest industrial union, decision to use its strength to achieve concessions. It claims that as a result of the industry's strong earnings and higher orders, that its engineering workers should be rewarded with a 6.5 percent raise in wages. Naturally this wasn't agreed to, but employers such as Volkswagen are forced to negotiate with the unions for fear of their strikes, which come at a high cost to the company. Union officials at Volkwagen have stated that they would be ready to hold warning strikes in the meanwhile to demonstrate their force and willingness to use it during negotiations to help gain an edge.

Competition

Market Share

Image:Marketsharevw.JPG

Source: Company info

As can be seen from the chart, Volkswagen has a World-Wide market share of almost 10 percent. However, Volkswagen has a very small market share in North America. This is a concern for the company since the United States is one of the world's largest markets and Volkswagen is fully aware of this. The company is taking on this issue with a few different approaches including providing more affordable and practical cars and introducing technological innovations which would increase the fuel efficiency of its vehicles along with making them more environmentally friendly. In 2008 Volkswagen will introduce its "Clean TDI" to the US markets in its Jettas which will even meet California's new strict emission standards and hopes that this will help increase its market share in the US.

Image:US Market Share.JPG

China

Image:Vwcms.JPG

Source: Company info

China has become of the world's largest automobile market and recently surpassed Japan to become second largest. It is experiencing tremendous growth and Volkswagen has been able to capitalize on this growth and continues to grow along with the market and increasing demand in China. Volkswagen has been fortunate also to be successful in securing contracts with the Chinese government and police further increasing its market share.

Product Age

Through examining Volkswagen's average product age relative to its competition one gains an idea of how Volkswagen's producst are competing. In the auto industry one of the main ways companies compete is by replacing their products with new models in order to attract new costumers. In 2007 Volkswagen only plans to replace its Skoda Fabia which accounts for 4% of its total volume. This figure rises to 19% in 2008, but then again in 2009 its percentage of volume for replacement dives back down to 8%. This coupled with the fact that Volkswagen's average product age is already older than its competitors, as can be seen in the following figure, could seriously hurt performance.

Image:Relative product age.JPG Source: Company info

Bulls

  • Volkswagen is one of the top providers of diesel vehicles to North America and with its Clean TDI systems which will be even more efficient looks to increase its market share.
  • Volkswagen is investing heavily in its Audi Group and hopes to rival BMW in the luxury car market.
  • Volkwagen has a firm foothold in the Chinese market which is one of the world's most rapidly growing markets and is continuing to grow there, Volkswagen also recently announced that it is opening up a factory in India for the production of a small car in hopes of being able to tap into India's booming market which has car sales growing at 25%.

Bears

  • Volkswagen needs to do more in terms of changing its focus from Europe to other markets such as the US and Asia which are significantly larger and growing at much greater rates. Volkswagen alreday has so large of a foot hold in Europe that it might be reaching its peak and has very little room for growth there. Resources spent on new plants and incentives in Europe would be better spent elsewhere.
  • Volkswagen will be forced to spend great amounts in hopes of accomplishing all of its restructuring goals considering it will be forced into making large concessions to its employees if it hopes to restructure its labor source.
  • Volkswagen has has little left in terms of new products or incentives to keep up its current momentum into the following years as its product line grows old.

Annotations

11/28/2006 Volkswagen announces that it plans on investing $530 mil to build its first plant in India for the production of a varient of its popular Polo in hopes of tapping into the booming market there

5/01/2007 Porsche announced that it plans to increase its stake in Volkswagen from 30 percent to 31, a move which by German law would mean they would have to offer an official bid for the full take over of the company

1/4/2007 Volkswagen announces its plans to launch its Jetta TDI which meets the most stringent emmissions controls in 2008

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