Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
Volkswagen (VLKAY)Stock (Retail Industry, Auto Manufacturing Industry, Manufacturing Industry, Transportation Industry, Auto Makers Industry)
 US operations are more of a struggle for Volkswagen, however. Its estimated losses for 2006 were a hefty 605 million euros. Volkswagen's North American product offerings are somewhat limited and ignore the small SUV, pickup trucks and minivan categories. The company also imports 38% of its US inventory from Europe. This is problematic, given that the weakened state of the dollar. Too expensive for the mainstream, yet not upscale enough enough to appeal to most high-end consumers, Volkswagen's overall offerings do not seem to mesh well with the North American market. Volkswagen will also have to deal with a slowing growth of demand for vehicles in its European market. Higher gas prices, concern about global warming, and U.S. and E.U. government legislation will drive an increasing demand for smaller, more fuel efficient vehicles, thus benefiting Volkswagen and its relatively environmentally-friendly cars. But this positive may be offset by the disadvantage of having a product line that is older relative to its competitors. Also, like most American and European car manufactures, Volkswagen's larely unionized work face means that the company will face significant hurdles in its attempts to improve effiency and reduce costs. Going ahead in 2008, recession worries, going green and guessing what baby boomers want are three things on the auto industry's mind.
[edit] HistoryFounded in 1937, Volkswagen has a long history in the automotive industry. Although often considered Europe's response to Ford, Volkswagen didn't establish itself as a competetive giant until 1972, when Volkswagen's Beetle overtook the Ford Model T's production record. The era saw two Volkswagen products become icons of the decade, the Beetle and the van. Since then, Volkswagen has remained the European powerhouse. Volkswagen currently produces everything from low-consumption small cars to high-end luxury automobiles, also boasting an impressive commercial wing that produces everything from pick-up trucks and buses to heavy trucks. Volkswagen currently has production plants in North America, South America, Africa, and Asia as well as in twelve European countries. Like many of its major competitors, Volkswagen operates a successful financial division with its own bank. [edit] German Base
Not only is Volkswagen is partly state-owned, its retention of a mainly German/European manufacturing base means that Volkswagen must face some of the stiffest labor unions and labor laws in the world. Additionally, any shifts in the euro-dollar dynamic heavily influence Volkswagen, with its reliance on American markets as well as European manufacturing. [edit] Products and Services  Source: Company info
[edit] Volkswagen Group Volume Data
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 which suggest strong demand for its products and successful marketing on the company's part. Through September of 2007, the company has achieved 20% growth and higher in vehicle sales and double digit percentage growth in revenue in emerging markets such as South America, South Africa, and Asia/Pacific. Overall, the firm earned 8% growth in unit sales and 5% growth in revenue through September, despite declining sales in the suffering U.S. auto market. In addition to revenue growth, excellent penetration of emerging markets has led to the doubling of operating income compared to the same period in 2006. [edit] CapacityVolkswagen in 2006 delivered 5,733,600 units world wide. Of that total, 3,668,161 units or 64% were for the European market. At the same time over 60% of the company's production is based in Europe. Volkswagen has recently reached an aggreement to with its workers to extend their work week. This should increase the overall utilization rate of there factories which currently stand at 82%. Given that demand in the European car market rose by less than 1% in 2006. Volkswagen's other markets, particulary Asia are growing much more quickly (25%), but with the higher cost base associated with European production will make the sell of the additional vehicles in US and emerging markets problematic.
In May 2008, the CEO of Audi (one of Volkwagen's subsidiaries) claimed that the whole company could benefit "tremendously" from the construction of a production facility in North America by mitigating the effects of the strong euro. Volkswagen has since announced plans to build a new manufacturing plant for the North American market in Tennessee, with plans to begin production by 2011.[1] [edit] Trends and Forces[edit] Consumer TrendsToday consumers are moving towards more environmentally friendly and fuel efficient automobiles, prompted by concerns over rising fuel prices and global warming. Furthermore, the U.S. government passed an energy bill in December of 2007 that mandates that by 2020, all cars, SUVs, and small trucks sold in the U.S. must meet a minimum standard of 35 mpg, up from 27.5 mpg in 2007. In a study recently conducted by J.D. Power and Associates to determine automobile environmental impact, Volkswagen ranked highest of the AEI nameplates. Three of its models were listed in the survey's 30 most environmentally friendly vehicles (the new Beetle, the Jetta, and the Golf). Volkswagen hopes to pair high fuel efficiency with relatively low selling prices, combining an appeal to environmental sensibilities with a more pragmatic, price-conscious attraction. Together, these factors may push an increase in Volkswagen's market share, especially in key markets like that of the United States. [edit] Exchange ratesMonetary exchange rates have a significant impact on international companies. Volkswagen's heavy reliance on US markets makes it particularly sensitive to fluctuations in the strength of the euro relative to the dollar. Because Volkswagen produces some of its cars in Germany, the company must pay a significant portion of production costs in the relatively more valuable euros. When these same cars are sold in the US in relatively less valuable US dollars, Volkswagen makes less of a profit than it would had these cars had been paid for in euros. In addition, the currently further weakening dollar means that Volkswagen cannot easily raise its prices to compensate for this reduction of profit. [edit] OilThe price of oil and its derivative gasoline is major determinant of vehicle demand. A reduction in the supply of oil, either as a result of political turmoil in oil preducting countries, are a conscious decision by these countries, can increase consumer demand for smaller more fuel efficient vehicles. Volkswagen is well positioned to take advantage of these 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. The December 2007 U.S. energy bill, moreover, mandates that cars, SUVs, and trucks sold in the U.S. must achieve 35 mpg by 2020. This should accelerate demand for Volkswagen's cars as the American Big Three struggle to meet the standard. [edit] LaborLike its North American competitors, the majority of Volkswagen's labor base is unionized. This complicates any efforts by the company to cut costs, increase efficiency or down size the labor force as Unions typciall demand job security and rising wages for its workers. 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. [edit] Competition
[edit] Market Share 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.   
[edit] China
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. [edit] Product AgeIn order to stimulate consumer demand, car manufacturers must continuously release newer more innovative models. Volkswagen's line up is significantly older than its competitors and there are no major launches scheduled for the near term. In 2007 Volkswagen only plans to replace its Skoda Fabia which accounts for 4% of its total volume.
[edit] References |
The Shelf
|
Edit
History
Bookmark
