The Value Chain of the Volkswagen Group

Table of Contents:

Introduction

The Strategy of the Volkswagen Group

The Value Chain of the Volkswagen Group

Conclusion

Introduction

The Volkswagen Group – from a company providing affordable cars for the German people to a global group producing broad-range models including premium vehicles for upper-classes.

The success of the today’s VW AG began in 1937 when VW was founded with the intention to provide affordable cars for the German people. After years of developing further models, acquisitions of other car manufacturers such as Audi and SEAT, and starting international operations, the Volkswagen Group has become the largest automobile manufacturer in Europe and one oft the leading car producers worldwide. Today there are almost 50 production plants in Europe, America, Asia and Africa. (Datamonitor 2008)

The Volkswagen AG consists of two divisions. Next to the Financial Services Division^[1] there is the Automotive Division that develops vehicles and engines, produces and sells passenger cars, commercial vehicles, trucks, buses, vans, pick-ups and campers. Brands that are part of the VW Group include: VW, Audi, SEAT, Lamborghini, Skoda, Bentley and Bugatti. (Datamonitor 2008)

Concentrating on the Automotive Division, the Volkswagen Group’s strategy is analysed by looking at its value chain. It is examined what is performed well, where strengths are that create value, and what might be improved.

The Strategy of the Volkswagen Group

Recently, Martin Winterkorn, the CEO of the VW AG, has announced the Strategy 2018. The ultimate mission is to outperform the world leader Toyota by 2018. (Schneider 2007) Accordingly, it is planned to increase sales from now 6.2m to over 10m cars within the following 10 years. To achieve this ambitious goal, the Volkswagen Group will launch many new models especially vans, pick-ups and SUVs^[2] which demonstrate very high growth potentials that Toyota already benefits from. A further step will be the penetration and extension of markets. (Handelsblatt 2007) Particularly, emerging markets like China, Brazil and Russia will be of major concern also because of a decreasing demand in Germany and Europe (Handelsblatt 2008b). Moreover, operations in the USA and Mexico will be expanded (Handelsblatt 2008a). India is seen as a key future market for the car industry. Therefore, the VW AG will soon start its production in Prune and enter this fast growing market with all its brands. To obtain a high market share, next to rivals that already operate there such as Toyota, Honda and Suzuki and following competitors like Ford and Fiat, the Volkswagen Group decided to develop cars adjusted to emerging markets. That means offering cheaper, smaller vehicles which are strongly demanded. (Müller 2008)

Consequently, the Volkswagen Group attempts to grow immensely in the following years. They have resolved to enter and intensify their worldwide operations and even to broaden their model offerings. This objective is underpinned by targets to become the “world leader in terms of customer satisfaction, quality and delivery performance”, to provide “brands and [..] products [that are] clearly and separately positioned in the market” as well as to represent “the employer of choice for extremely competent and highly motivated employees and the cooperation partner of choice for high-performance suppliers and dealers” (VW AG 2006, p.112).

Due to a highly competitive car industry, such ambitious goals are not easy to achieve. The Group will be required to enhance efficiency and effectiveness of virtually all its activities. Relative cost advantages and superior insight into customers’ preferences will be necessary to compete against rivals and increase market share.

The Value Chain of the Volkswagen Group

To detect all activities in a systematic way, the Generic Value Chain of Porter (2004, pp.33ff) can be used. According to Porter, each activity can generate advantages in costs or differentiation. In the today’s automotive industry both aspects are of major interest. By looking at the core values, it can be seen that customer nearness is of considerable concern. Therefore, the Volkswagen Group can be seen as a differentiator that not basically focuses on low costs but tries to provide superior vehicles in terms of quality, design, innovation and technology. Such attributes can act as unique values that customers appreciate and are willing to pay for with a price premium. Nonetheless, this premium has to exceed the costs of differentiation to gain a profit margin (McGee et al 2005, p.210). Consequently, the value creation depends on activities located in a firm’s value chain.

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(VW AG 2008a)

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^[1] The Financial Services Division offers services such as dealer and customer financing, leasing, banking, insurance and fleet management. (Datamonitor 2008)

^[2] Sport-Utility-Vehicles.