The Future of Volkswagen: Rebuilding Trust and Embracing Sustainability

Abstract

This essay examines the impact of the 2015 Volkswagen scandal on the automobile industry and the strategies Volkswagen employed to regain consumer trust and market position. Volkswagen released diesel automobiles in 2009 to cater to consumers who wanted fuel-efficient cars without hybrid technology. However, in 2015, the United States Environmental Protection Agency found a flaw in these cars and issued a violation of the Clean Air Act, leading to a loss of revenue, recalls, and lawsuits. To recover from the scandal, Volkswagen implemented a PESTEL analysis, a strategic management tool that considers political, economic, social, technological, environmental, and legal factors affecting the business environment. Additionally, the company adopted a business-level strategy that focused on being the leading provider of sustainable mobility, with four target dimensions: excited customers, excellent employer, role for environment, safety and integrity, and competitive profitability. The company also managed its finances well, with enough capital to meet short- and long-term obligations and higher profit margins than competitors. The essay provides short and long-term recommendations for Volkswagen, including hiring engineers from different countries, focusing on company values to match the ethics of society, and promoting the use of renewable energy sources such as solar and wind power. Overall, the essay illustrates the importance of a strategic management approach and ethical values in recovering from a scandal and maintaining market position in the competitive automobile industry.

Executive Summary

The automobile industry is a very fast-growing industry that is constantly releasing new technologies to benefit consumers and the environment in the best possible ways. In this industry companies are always on their toes trying to find the best innovation. In 2009 Volkswagen decided to release Diesel automobiles. These automobiles were for the consumers who wanted a more fuel-efficient car without going to a hybrid. The consumer who would like to keep the power and benefits of a gasoline-powered car. This new release was super successful and multiple companies that Volkswagen manufacture car for also released this new technology. In 2015, the United States Environmental Protection Agency found a flaw in these automobiles and issues a violation of the Clean Air Act. This violation led to many challenges for this brand and even a loss in revenue. This scandal has led to million recalls on their vehicles and even lawsuits. Now not only does Volkswagen have to face the consequences of this scandal but work twice as hard to regain the trust of their consumers and beat out their competition. In order for this automobile company to fulfill its lost in revenue the industry must review the strategies that must be implemented. Once the company was back on track with its increase in revenues, the industry had to rely on various forces in the business environment that affect the business directly and indirectly. A way that Volkswagen managers are able to make proper decisions is by using a strategic management tool such as a PESTEL analysis. PESTEL is an acronym that stands for political, economic, social, technological, environmental, and legal factors that impact the environment of the industry.

COMPETITORS ANALYSIS RECAP

Its business-level strategy of Volkswagen is to be the leading provider of sustainable mobility. They have a focus of four target dimensions that helps them achieve this goal of there’s. The first one is with the excited customers. They always want to aspire to exceed customers expectations by providing them with good quality products, services, and the most efficient solutions they can get. The second one is being an excellent employer. Having skilled and dedicated employees is the key to sustainable success. They always strive to have a motivating work environment in order to retain their core workforce and attract new talent. Their foundations for this is exemplary leadership and corporate culture. The third target dimension is the role for the environment, safety and integrity. Volkswagen makes sure to pay attention to their use of resources and the emissions of their product portfolio. Because of the diesel scandal, they are taking more precaution in their actions with having the goal of reducing their carbon footprint and the decrease of pollutant emissions. Finally, the company targets the competitive profitability. The company wants to maintain as an attractive investment. The goals they have set for themselves for this are operational excellence and becoming the benchmark for the entire industry.

FINANCIAL RECAP

The automobile industry is one of the hardest to navigate financially. It requires enormous capital requirements and the ability to manage debt. Volkswagen has done an excellent job, indicated by their financial ratios. They have enough capital to meet their long- and short-term obligations and have higher profit margins than their competitors. Volkswagen has consistently grown in sales over the last decade and according to their financial statements they will be able to sustain themselves in the future. A few short term recommendations are to hire engineers from different countries who are highly skilled in the field. This is a good idea that way there is no bias that is taking place when manufacturing the diesel vehicles. Since a possible assumption was that a few managers did not speak up of the scandal that was happening behind closed doors only because it was going to generate more equity to the team. A different recommendation is to focus on the company’s value and assure it matched the ethics of current society. Not only would it be used as a tool it will gain back all lost trust from customers. Long term recommendations for Volkswagen are to promote the use of solar and wind power as alternative renewable energy sources. It is not enough to produce electric vehicles to reduce their carbon footprint, as this will also impact the amount of power-plant electricity consumed. Power plants are responsible for the largest percentage of CO2 that affects the air quality. Increasing renewable energy will also increase their corporate social responsibility towards society.

External Analysis

Industry Definition

The automotive industry include a variety of companies who take part in designing, developing, manufacturing, marketing, and selling automotives. The company we will be focusing on is Volkswagen, a German car manufacturer, which has a variety of car models available for what best fits the consumers needs. Models that Volkswagen manufactures include Sedans, SUVS, Wagons, Compact, and convertibles. Volkswagen is a well known company whom has been involved in a scandal with the following models Volkswagen Golf, Volkswagen Jetta, Volkswagen Beetle, and Volkswagen Passat. To ensure that Volkswagen continues to be a well-known company that consumers trust and want to buy it is important for us to create a strategic move that will insure this outcome.(2015, September 21)

Five Force Analysis

Power of Suppliers

In the automotive industry companies tend to use the various materials to manufacture their vehicles. Two common materials are steel and aluminum. These supplies are easy to access at a low cost which lowers the power of suppliers. Companies can switch these suppliers at any time with no hesitation. However, there are some supplies that companies cannot outsource for such as their engines. This increases the power of suppliers because it is a supply that a company cannot just go to another supplier for. Automobiles are made up of an abundance amount of parts and every part varies and is unique. This is what makes it a little more difficult for the companies in this industry. They all want to stand out in their own way and have the best quality offered to their consumer. This all goes down to the supplies they use and their access to them. For example, every car needs tires. There are multiple suppliers for tires such as Good Year, Continental, Michelin, Bridgestone, and many more. This will lower the power of the supplier because the company has various options on what tires they want on the car. Of course they must take into account what tires are best for their car because the tires on a Beetle would not be the same for a GTI because one is a race car and the other is a compact car. But, every company tends to offer a full variety of tires. Often the automotive companies like to have a long term and strong relationship with their suppliers and the suppliers value their business because they bring in a lot of the profit for the supplying company. Overall, the power of suppliers in this industry is low because there are many suppliers business that depends on the business of the automotive company.

Power of Buyers

Buying a car is not taken as a joke with consumers. It is a very serious buy because the consumer is usually spending over $10,000 on a car that will be reliable. When it comes to purchasing a car the consumer walks into a dealership knowing more about the car than the salesperson. Over the years a car consumer has become very knowledgeable. Consumers have the ability to be very demanding when it comes to purchasing a car because there are many options for them to choose from. For instance, they can choose based on brand reliability, miles per gallon, maintenance cost, horsepower, how spacious it is, the drive of the car, and its safety. All these aspects are taken into consideration. Since there are many options for the buyer this tends to rise their power. But, not all buyers have a lot of power because they do not have the funds for it. For example, a lot of lower-class buyers tend to buy a car that is most affordable off the lot. They may not like the brand but brands such as Kia and Hyundai have a lower price compared to most car companies. These buyers have a low power. Overall, the power of buyers is medium-high because it ultimately depends on if the consumer has the finances or not to become demanding.

Threat of Rivalry

The automotive industry has about 30 different types of brands. Not every brand offers the same price range, but many brands do own other companies that meet every price range. Not only are there many brands in the car industry, but customer loyalty tends to be high. This is why a lot of their revenue is given to their marketing department and research and development department. According to the NADA dealerships should be spending on average $494K on marketing cars they sell. (Austin, 2015). This amount of money is not what any typical industry spends on their marketing. But, it is in the brands best interest to make sure their advertisements show how reliable, safe, low-cost, luxurious, and innovated their new car is. A car is used for mainly one reason and it is to take an individual from point A to point B with as few problems as possible. This is why many consumers in this industry build loyalty. If the Honda they owned in 1999 lasted them until 2008 it is reliable and the likelihood of that consumer buying a new Honda is very high. This is why the marketing and lease offers dealerships offer are becoming so relevant to a consumer. This is all because of the high competition and every company trying to highlight the best aspects of their vehicles. This leads to the threat of rivalry being insanely high.

Threat of New Entry

This industry has an abundance of brands that have been competing for the past 20+ years. To entry an industry with such a cutthroat competition is unfavorable for many companies. In the automobile industry there are high barriers to entry. Many governments are added to the regulations they are enforcing throughout their land because cars are hurting the environment. In China the government saw an increase on vehicles on the road by 26 times in the past 25 years.(Yang, 2019). This has been harmful to the environment and quality of air people have been breathing. The expansion and demand of automotives led to many governments adding many regulations and fees making it hard for new companies to compete against these established brands. Not only does the government have an effect on the favorable risk of new entry, but the capital that is needed. In order to compete in the industry you must be able to produce at least a minimum of 1,000 cars to compete with brands who produce five times 1,000 a year. This is a lot of initial capital needed. Entering the automotive industry is not ideal for any new company. There are far too many obstacles to pass to even be in the industry, let alone be able to compete in the industry.

Threat of Substitutes

Substitution in this industry is far beyond the types of cars you are able to drive from basic gasoline, hybrid, and now to full electric. The industry has moved into substitutes for gasoline cars to help the consumer who is environment friendly. But those are not the only substitutes offered to these consumers. There is public transportation, taxi services, Uber, Lyft, and Rideshare. These are affordable options that limits the cars on the road as well as saves the consumer the hassle of sitting in traffic if they live in the city. People have now geared towards using Uber and Lyft as everyday transportation it has actually affected car sales in the past year. Yes, the taxi services, Uber and Lyft, must have a car to provide the service but many automakers are looking to become suppliers for these companies. (Ahmed, 2017). Many consumers are looking for more sustainable ways of transportation which has led to an increase of public transportation. Having such a large industry already results in a high level of substitution, but now adding these third party companies this is probably the most unfavorable aspect of the automobile industry.

Overall Attractiveness

Based off Porter’s five forces, the automotive industry is moderately unfavorable, with some favorable aspects. Exhibits 1 & 2 are surface-level analyses containing all the aspects summarized from the analysis of the automotive industry. Meanwhile, Exhibit 3, digs deeper into the automotive industry ranking all the aspects of each of the forces and ranking them 1-5 1 being most favorable/low or 5 being unfavorable/high. This is considered a level two analysis. After rating them and seeing the overall rating for each aspect we can now look at the industry as a whole. In exhibit 4, it shows the industry as a whole and how each aspect contributes to the overall rating. As showcased in the Level III Analysis there is a majority of unfavorable aspects such as, threat of substitution, threat of rivalry, and the power of the buyer. Meanwhile, there are only two aspects that are favorable which are the power of suppliers and threat of new entry. As a result, it demonstrates that the amount of competition in this industry is high and is moderately unfavorable for these companies.

PESTEL

Political

Since Volkswagen is partnered with many foreign vehicles, they must carefully analyze the political factors in that country because it contributes when conducting business internationally. Not only that, yet high taxation by governments can lead to a drop in sales. Currently, the markets have been stable resulting in rising demand for car industries such as Volkswagen. In this century majority of automobile industries conduct most of their business internationally where another factor they must take into consideration is terrorism. There are some countries that terrorist organizations are active resulting in companies not being able to spread their business internationally. Besides taxation and terrorism, illegal production contributes to its political factors. When the scandal occurred with Volkswagen, the company was seen as fraud and resorted manipulation. According to the International Committee of the Fourth International, the illegal software was built into 11 million cars worldwide. (Schwarz, 2015) With such a high number, employees must have known of the illegal activity that was being used when their diesel cars failed to meet the strict US emissions standards. Trade tariffs has become a major issue with Volkswagen ever since Trump mentioned the notion of a 20% increase on tariffs on all imported cars from the EU. (Brunsden, 2019) These tariffs are most likely to impact Germany since majority of their $42million automobiles from the EU where from Germany. Economic Depending on the country, economic conditions can affect the revenues of the company. If the economic conditions are low, then society will think twice when purchasing a vehicle. Meaning they would look for the best deal in every car dealership. Resulting in Volkswagen having to conduct research to properly adjust their prices to meet the local conditions. They must create a wide variety of products that can still be affordable for those stuck in the low economy. However, when the economy is high, sales can rise benefiting the company. Besides having enough funds to purchase a vehicle, some may still need additional loans in order for them to leave home with a new automobile. Financial services such as loans can play an important role in the car industry. Banking’s provide different rates depending on the country, these rates can either benefit or affect the revenue of the company. When discussing rates, other conditions have to be taken into consideration based on the region. One of Volkswagen’s strategy is creating manufacturers in areas where the whole region is surrounded by successful warehouses that will have local factories that can provide convenient factors such as transportation and quick supply delivery. Selection of the proper regions with countries who have high economy can be beneficial for Volkswagen since the automobile industry can gradually affect the country’s GDP. By surrounding themselves with successful different industries such as glass, tires, and steal they are able to provide employment opportunities in these developing countries. Based on economic forecast, GDP is seen to have dropped its estimation by 0.1 percentage points leading to 2.4% in 2019 and going back down to 1.7% the following year. (Focus, 2019) With the improvement of their diesel scandal it will support the notion of the united states being the leader in higher value industries like automobiles companies.

Social

Sociocultural is now a huge factor in the automobile industry because companies have to look at the preferences of customers and its buying habits. Knowing these traits of their customers can help increase their revenue by changing and adapting their views to meet customer standards. Car industries are able to look at the social demographics to see what people are spending their money on and how much they are willing to spend when it comes to purchasing a vehicle. Knowing their preferences can be beneficial in both sales and marketing because they will know what society wants to see therefore promoting based on preference. Since social trends are always changing industries have to depend their strategies on the difference of the market and their cultures and continuously keep them updated. Since trends are always changing, innovators are introducing new technology every year which led to people being more interested in sustainable products like electric vehicles. Although Volkswagen faces allegations that caused them millions due to a diesel scandal which forced them to remove products from their line, within the next year they made improvements that led them back on track. This issue affected the corporate social responsibility since it was affecting pollution making it a failure to the environment. The sad truth is that society would much rather have a luxurious car that does not run on gas instead of fighting for a cleaner environment. This is where the country’s social norms come into place.Technological FactorsThe automobile industry depends on better-engineered fuel-efficient engines to battery-run vehicles. Fuel Cell Vehicles (FCV) are slowly adding pressure to traditional engines due to their low emission footprint. FCV reduces the need for oil through the use of hydrogen fuel, dropping the cost on fuel spent by consumers. Competitors such as Honda, Hyundai and Toyota have adapted to this technology by launching at least one model in the automobile industry. Tesla’s advanced auto technology possess a threat with features such as autopilot and zero fuel dependency, electric vehicles. Although these challenges are faced by the entire auto industry, Volkswagen also faces the challenge to develop the technology for its diesel vehicles to pass the emission standards in the United States. Other challenges come from Ford and Hyundai’s new integrated smart sensors that warn or go as far as stopping the car if the driver is asleep and there is danger of collision.

Legal Factors

The car industry has to modify their products based on the host country’s regulations. There are different laws that each country establishes to make vehicles legal and safe to drive in the streets. Government regulation such as the U.S. Environmental Protection Agency (EPA) certifies vehicles that pass the emission standards. Models not covered under EPA, are not allowed to be sold to consumers. Manufactures that break the law can face criminal and civil suit by EPA. Environmental FactorsStudies from World Health Organization show that air pollution has led to deaths from lung cancer, strokes and heart disease. Traditional motor cars are considered part of the problem. Various countries have increased the pressure for car manufactures to reduce their vehicles’ carbon footprint as a means to improve the air quality. Countries like France and Britain have gone as far as to embargo the selling of diesel and petrol cars within the next 20 years. Corporate Responsibility is no longer a choice. Companies like Volkswagen will have to invest heavily in environmentally friendly cars to retain a market share in these countries.

Competitors Analysis: Automotive Industry

The automotive industry has quite a few competitors, top 10 competitors include Toyota, General Motors, Ford, Nissan, Hyundai, Bmw, Chevrolet, Honda, Subaru, Kia. (2019, January 11)

• Volkswagen

Volkswagen is a German automaker and is one of the largest automotive industry. Average annual production output of 12 million units and an annual revenue of approximately 150 billion euros. Volkswagen also owns Audi, Bentley, Porsche, Bugatti, Ducati, and Lamborghini subsidiaries.

• Toyota

Toyota is a Japanese company that manufactures cars, and is one of the biggest competitor for Volkswagen. Toyotas unit production rate has been approximately 12 million cars with returns being around 250 billion dollars. Their sales were around 10 million car models and over 5 million nameplates in a year. Toyota owns Daihatsu, Lexus and Scion. Toyota owns 17% market share in Subaru Corporation and 8% stake in Isuzu Industries.

• General Motors

General Motors is an American company that manufactures and sells vehicles including spare parts. General Motors makes around 9 million vehicles sales globally and 170 billion dollars in revenue and operating income of approximately 10 billion dollars.

• Ford

Ford is an American company that manufactures vehicle and is the second largest in the USA. Ford produces and sells more than 6 million car units in a year. Ford has an operating income of 6 billion dollars, and 150 billion dollars in revenue. Ford has 10% Aston Stake and 50% in China’s Jiangling.

• Nissan

Nissan has 8 million annual car sales. In 2016, Nissan was the first to manufacture electric power vehicles and sold more than 245,000 units the same year.

• Hyundai

Hyundai is a South Korean auto manufacturing company. Hyundai has a net operating income of 12 billion dollars. Annual revenue is around 219 billion dollars. Hyundai made 4.9 million vehicle sales by the end of 2016.

• BMW

BMW is a German automobile company. Total production output is estimated 2.6 million vehicles annually. Out of the 2.6 million , 2.2 million are sold to generate revenue and approximately 100 billion euros. BMW is the highest competition in the premium sports car segment, because of the Audi from Volkswagen.

• Chevrolet

Chevrolet is an American automobile company. Chevrolet sales more than 2 million car units every year.

• Honda

Honda has annual revenues of 15 trillion yen with net operating income of about 500 billion yen. Hodas best selling car brand is Acura which makes 150,000 sales yearly in the USA. SubaruSubaru is a Japanese automotive company and is ranked 22 globally in vehicle production. It accounts for 70% of its total sales. In 2016, total car sales in the U.S were over 650,000 units and in Canada a little below 60,000. Annual net sales revenue was 28 billion dollars. Kia Kia is a South Korea based automobile company. Kia’s annual sales were a little above 2.9 billion annually. Kia has a net operating income of around 3.5 billion dollars and annual production output is around 3 million units . Intra- Industry Analysis: Analyze Competitve Dynamics The automobile industry is currently experiencing new growth in countries such as Brazil, Argentina, Philippines, Chile, Iran and Pakistan. Some of these countries faced higher taxes on imports; hence, companies established full assemble lines to remain competitive, allowing them to increase their sales at lower costs. Other countries have low-interest rates and cheap fuel, making automobiles affordable to own (KALLSTROM, 2015).

In contrast, the European and American car-industry are some of the market segments that have reached the maturity stage with traditional combustion vehicles. At this stage, companies lack new customers due to lack of innovation. However, with the increased use of smart technology, the car industry is facing a mix shift between growth and shakeout. Customers’ preferences are demanding smart cities with sustainable mobility. Hybrids or electric vehicles with low to zero-emission, along with interfaced features such as automatic object detection and driverless cars, the new 4.0 Industry. As companies attempt to remain competitive and sustain their market share, 28 percent of them have created a new digital technology base aim to reach customers that cannot be reached through traditional channels (RICHARDSON & WRIGHT, 2019). Other elements, aside from smart vehicles, that have caused disruption in the auto industry are car-sharing services such as Uber, Car2Go and DriveNow. This has cause reduction of car sales, thus less cars on the road in the future (RICHARDSON & WRIGHT, 2019).Competitors in the auto industry have quickly innovative eco-friendly vehicles with high technology to remain competitive. Nissan has developed an eco-friendly car, Leaf, with an interior made out of 60 percent recycled water bottles, and when it reaches the end its life cycle (scrapped), it’s 99 percent recyclable. Mercedes-Benz model C 350e is a hybrid vehicle that can use regular household electric power, with low emission. Toyota’s Prius model is fuel efficient, with an aerodynamic body that offers smooth flow. This model alone, has reduced the CO2 emission by 11,794,335 tons. BMW i3, electric car, has a range of 190 miles, body made out of carbon fiber reinforced plastic and an interior that combines natural fibers such as eucalyptus wood and olive leaf-tanned leather (WHITE, 2019). In 2019 Volkswagen launched “We Share,” a car-sharing service, using their new fully electric e-Golf generation. This strategy aims to increase interest in their technology while supporting their brand image through eco-friendly cars with no CO2 emission, that are safe and comfortable to drive in (BERLIN, 2018).

Summary of External Analysis

The automotive industry is very mature financially, but needs to be constantly changing and developing new models. There are many different competitors in this industry, however consumers are now shifting their preferences from gasoline cars to a more sustainable alternative. This alternative may not involve a purchase of a car because there are substitutes that are now offered such as Rideshare, Lyft, and Uber. These alternatives also have a lower price to the consumer which attracts them more. Not only does it attract them because it limits the amount of cars on the road, but they no longer have to sit behind the wheel in traffic it is now someone else. This shift has caused the automobile industry to look at more sustainable vehicles that do not use gasoline. Volkswagen competitors are constantly trying to innovate their cars to make them more sustainable and attract the consumer base. Not only has consumer preferences changed, but as for government preferences. As seen above, the government has a huge impact on the industry and the cars that are released. This industry is very fast-paced and is demanded by many. However, it is time for the industry to find alternative ways to keep car sales high and consumers happy with their purchase.

Internal Analysis Strategy Statement

Volkswagen's overarching vision and strategy is to become a world-leading provider of sustainable mobility. Corporate Level Strategy Volkswagen’s Business PortfolioWith over having 12 automotive brands, the common goal all of them have is for mobility. Volkswagen is one of the world’s largest automobile manufacturers, posting €235.8 in revenue for fiscal year 2018. The products range from motorcycles to low-consumption small cars and luxury vehicles. In the commercial vehicle sector, the products that are included in the range are from pickups to buses and heavy trucks. Apart from the vehicles, they also offer financial services and include dealer and customer financing, leasing, direct bank insurance, fleet management and mobility offerings. The company has recently overtaken one of its competitors Toyota to become the world’s largest automotive maker when it comes to sales. Because they have a much larger product portfolio, it allows the company to cater to a larger customer segment and varying tastes from a global audience.

Core Competencies

Volkswagen’s core competencies are the inclusion of innovation and diverse product portfolio. The company has continued to invest in innovative technologies and the creation of vehicle models which is why the brand is growing and marketing itself faster. Another action that is benefiting them is increasing the level of collaboration between the brands they own. The company continues to focus on research and development in order to bring brand-defining products and services while also doing research in more mobility solutions. Recent Mergers, Acquisitions, and DivestmentsVolkswagen has grown its automobile empire through acquisitions of multiple other car companies. Volkswagen might have had its most prolific year in 1998 when they aimed their sights on the niche super luxury sports car market. They acquired well-known and coveted brands Lamborghini, Bentley and Bugatti. In addition to those previously names companies, Volkswagen purchased Ducati ten years later adding to its already impressive portfolio. Volkswagen has been able to capture a larger market share thanks to their diversification of cars. They have cars to sell to people who have regular incomes and are able to market to the top one percent. Recent PartnershipsVolkswagen recently partnered with Ford automotive to do a joint global manufacturing alliance. Volkswagen and Ford are also planning to pursue autonomous driving capabilities for the future. They are going to be sharing information about production and technological research with each other. Ford and Volkswagen are going to start their collaboration by producing commercial vehicles and pickup trucks that will be available within the next couple of years.

Business Level

Strategy Focus

Volkswagen mission is to offer tailor-made mobility solutions to their customers. They understand customer needs and how diverse they can be by offering a line of different brands. Volkswagen focuses on the social and environmental issues in the world and feel it is their responsibility to make a change for the better. Their foundation for their work is passion and quality while acting with integrity and building on reality. HistoryVolkswagen was a German automobile manufacturer founded by the German government in 1937 then under the control of Adolf Hitler. One of his projects was to develop an affordable “peoples car”. His purpose for this project was to aid the transportation needs of the people of Germany while also giving them joy with their new automobile. The sales of Volkswagen were not as fast in the United States compared to other parts of the world due to the history that connected with the Nazi. In 1959, Doyle Dane Bernbach had launched a campaign that helped the beginning of the companies success. The campaign was promoting the the the “Beetle” and emphasizing its diminutive size as a distinct advantage to consumers. Volkswagen had become the top-selling in the United States when it came to auto import.

Business Strategy

Volkswagen is currently going under a strategy shift that will involve both changing the structure of the culture and business. Because the diesel scandal had a big affect on their brand image and reputation, they had to think more carefully about their actions to realign their goals as a company. Their new strategy is leaning towards a direction that will have them emerge into a more accountable image.Integrity and sustainability has been Volkswagen key elements within their strategies. Their new strategy initiates the direction the brand is going towards globally and includes all the controversies that mattered to them most and have to consider for the future of the brand. To improve consumer trust, they are focusing on the entire product cycle and products that are exceptionable. In addition to that, they are building an organization that is more easy-going for consumers. They are learning from the diesel scandal and want to pursue a culture of openness.“Strategy 2025” is what they are naming their long-term plans and it is not going anywhere anytime soon. One of the main strategies in related to their future plans is to push for electric vehicles. Because of the alarming pollution levels and the environmental consciousness that is rising, more shift into this culture is happening and it makes sense to do it as a global company especially one that has been in scandals with emissions data. Overall, the future program will be launched and intended to make the Volkswagen group more innovative, focused, efficient, customer-orientated, and sustainable will eventually lead them to generate profitable growth. Volkswagen uses differentiated targeting strategies depending on what products they were offering to their specific segments of customers and brands. The company mainly likes to use a value-based positioning strategy to create an emotional and inspirational connection with their customers. Since majority of its brands are in the premium segment, this gives them an easier understanding of what customers have in mind when it comes to an image built in their mind about the product. Some competitive advantages in their marketing strategies are having the help of their strong brand portfolio and their new future plans such as “Strategy 2025”. This keeps them ahead of the game in the automotive industry with a cost-effective ecosystem and a functioning support system. Another advantage they have is its low operational cost. Economies of scales in its processes such as the operational, manufacturing and productions has helped the brand at low cost therefore spending more on their branding and advertising activities.

Resources & Capability Level Support Activities

Firm Infrastructure

Volkswagen has been able to maintain a large production infrastructure. It has produced over 10.9 Million units of vehicles in 2017. Because their network is global and has over 120 locations, this is has been a major benefit for them. one of their main strengths is the competitive design they are well-skilled at. They are always keeping themselves up to date on the new trends and new technologies for their concepts.

Human Resource Management

The Volkswagen group is one of the worlds largest employers in the private sector. They have about 642,292 people employed. This is also including the Chinese joint ventures. Skilled and dedicated employees has always been a key for Volkswagen. Because they believe in this, they emphasize on their strategies that relate to human resources which approaches with the strategy of “Empower to transform”. Other things included in this strategy is the focus in corporate governance, comprehensive participation for employees, outstanding training opportunities, and the principle of long-term service through systematic employee retention. As well as doing their part to help, they also want to aspire and innovate.The company has for main objectives they focus on when it comes to their human resources strategy. The first one is that they aim to be an excellent employer with all of its brands and companies worldwide. The second is add value to customer focus with the strive for excellence when talking about innovation. A sustainable work organization with great environment and great working conditions for our employees is also a main objective. The last key point to their top objectives within their strategy is being highly orientated while also aiming for operational excellence and providing great contributions to the team.

Technology Development

Volkswagen is always trying to improve and this wouldn’t be possible without the help of technological innovations. With their new program which is called “Strategy 2025”, they will continue to develop mobility solutions they promise to their customers as long as establishing technological expertise to strengthen their brand. They want to improve on the functionality, quality, and safety of their products while maintaining them environmental friendly.

Primary Activities

Inbound Logistics

The Volkswagen Group is highly complex that involves more than 5,000 suppliers and logistics partners. They ensure timely delivery of parts to the production lines with the cooperation of their suppliers and carriers. Discovery is a first joint digital platform the helps the transport between the suppliers and carriers. By 2020, they are hoping this platform will be used for communication within all their European suppliers.

Operations

U.S. Chattanooga’s assembly line produces 180,000 cars a year. It includes a paint shop, body shop, assembly line and technical center. Volkswagen offers training through the community college in various departments; manufacturing, electronics, auto repair, before hiring (Brauner 2012). Outbound Logistics Transportation varies internationally and in size, including the use of thousands of trucks, rail wagons, and large inland barge. In 2016, 5.2 million vehicles inland and 2.5 million overseas were transported globally from Konzernlogistik, Germany (Ludwig, 2017).

Marketing and Sales

Volkswagen is implementing the TOGETHER sales strategy where they will be focusing how to meet their customers needs in different ways. The focus area for them is the customer ecosystem where they can have a safe digital brand experience at any time. This will enable the team to increase their data protection standards as well as experience with optimizing how their brands capitalize profitability on market opportunities. Customer satisfaction and customer loyalty is a way the group is strong at when it comes to retaining their customers. They like to value their customers emotional connection to their brand because it brings more to their plate and feelings towards the products. This is what many customers hope to achieve when purchasing a product especially such a valuable and luxurious product like a car. Our customer group is guaranteed to have more vehicle sales from them than the private customer segment. In 2017, the share of fleet customers had stayed at 14.1% with a 2.7% growth in the market in Germany. Outside of that country, our growth has increased by 24.5%. Because the Volkswagen Group share stayed at a constant rate of 28.9%, it showed us that our fleet customers will have considerable confidence in them.ServicesVolkswagen cares the same about your satisfaction after you have made a purchase. They always want to ensure the safety and value retention of their customers needs. Volkswagen has about 120 of their own warehouses that are authorized service facilities which can be supplied within 24 hours. They want to make sure that the after-sales business can cause less stress to the purchasers by being able to provide the service and products that they need in order to achieve worldwide mobility. The companies workshop service and service contracts are aiming to reduce serving times and costs with the view of decreasing operating costs to not discard their value.

CUSTOMER RETENTION

Volkswagen is “the world’s second-largest automaker” and that has a lot to do with the quality of their products (Muoio 2017). Volkswagen has been around since the early 1900s and has created a solid brand since its inception. Part of their retention strategy is through brand loyalty, although German cars are known to be relatively expensive to fix, Volkswagen has a reputation for reliability. Volkswagen’s image was hurt by the emissions scandal of 2015 and they lost some credibility in the eyes of consumers, evident in the drop-in sales. Volkswagen has rebounded since then, in the aftermath they offered customers a longer warranty on their vehicles. Volkswagen increased their old warranties by a year, from five years to six years. Volkswagen also doubled the warranty mileage of its competitors, such as the “Ford Explorer and Honda CR-V” that “come with three-year, 36,000-mile basic warranties”, to 72,000 miles (Muoio 2017).

FINANCIAL ANALYSIS: VOLKSWAGEN INTERNAL PERFORMANCE SALES PERFORMANCE

Volkswagen has had steady sales growth, about 12 percent over the last five years and roughly 90 percent since 2006 (Exhibit 5). The only year they did not have an increase in sales was in 2015 during the emissions scandal where they faced a slight drop in sales. Volkswagen cars were found to be putting out more than triple the legal amount of emissions in their turbocharged direct injection (TDI) diesel engines. Volkswagen had intentionally programmed their TDI car computers to only control emissions during testing and revert back to their normal output afterwards. Volkswagen was able to course correct in the following year doubling their growth from 10.2 million in sales in 2014 to 10.4 million in sales in 2016 (Exhibit 5).

RATIO ANALYSIS PROFIT

Gross Margin Volkswagen has a higher gross margin (19.28%) then the industry average (18.67%), as seen on exhibit 6, which is a good sign because they make more on their cars than their competitors (Investing, 2019). It makes sense that Volkswagen has a higher gross margin because Volkswagens are slightly more expensive than similar competitors.

LIQUIDITY

Quick Ratio Volkswagen has a quick ratio of .76 compared to the industry average of .82 (Investing, 2019). In this instance Volkswagen is behind and a lower quick ratio indicates that they may not have enough cash or liquid assets available.

Current ratio

Volkswagen has a current ratio of 1.03 and the industry average is 1.36. Volkswagen is lagging a little behind its competitors, but its current ratio indicates it has sufficient assets to meet its short-term liabilities (Investing, 2019). This is a good sign for Volkswagen and its investors because it shows they are not overextending themselves financially. Asset ratio Volkswagen has an asset ratio of .55 and the industry average is a .60 (Investing, 2019). This means that Volkswagen is relatively average when it comes to efficiency. For every dollar generated from Volkswagen assets they make about fifty-five cents about five cents less than the industry average so Volkswagen is right in the middle of the pack in terms of efficiency.

Strategic Move

Connection w/ business and corporate level ( Andre & Daisy)Competitive Dynamic As we can see the automotive industry is highly competitive. It is hard for new companies to enter this industry and many companies that are competing in this industry are in the mature stage of their lifetime. However, as we look into the automotive industry more into the depth we see that there has been a shift in consumer behaviors shifting from gasoline cars to a more sustainable alternative whether it be electric cars, uber, public transportation, and even hybrids. Volkswagen thought they could beat the market by releasing a TDI car which offers all the perks of a gasoline car, but it would be better for the environment. This was a turn for the industry and many companies that Volkswagen owned started to replicate it. This is an example of how the car industry works. One company will release a new innovation to a more sustainable car and their competitors will replicate it, but try to offer more perks to their version. This is what keeps the automotive industry highly competitive. Industry Dynamic In the automotive industry there are many competitors such as Toyota, Honda, Ford, the list goes on. Automotives are always in high demand since it is a means of transportation. The Emission scandal caused Volkswagen billions of dollars as well as the trust that they had with their customers. If Volkswagen did not respond fast to the scandal they could have lost their customers to other competitors. Volkswagen is leaning towards electrical powered vehicles and other competitors are following to provide this option as well. As consumers want more economical-friendly automobiles, many auto companies will have to provide electrical cars to stay relevant in the eyes of consumers. Effectiveness Volkswagen should be able to efficiently implement our strategic suggestions. They are the second largest car company in the world, and they have a recent partnership with Ford that will make it an easier transition to the creation of more electric vehicles. Volkswagen has the resources and capabilities to reposition itself in the market, as seen by how they were able to bounce back after the 2015 emissions scandal. Volkswagen has the financial resources to fund their R&D for future technologies. Also, our strategy does not require huge amounts of manufacturing overhaul, Volkswagen should be able to use the same process with some modifications. Volkswagen is able to produce right now but it is not too big to fail. Our strategy for Volkswagen will be sustainable in the future because it will adapt to the changing trends before it is too late.

Recommendation

Short-term recommendations

Besides the scandal that occurred with Volkswagen, managers at the company were able to reanalyze their techniques to improve their revenue that was lost after the lawsuit. Throughout this full extend analysis that was provided, we came to a few conclusions regarding beneficial recommendations. A short-term recommendation for the company would be based on gaining back the trust from their customers. This all goes back to front of the house, focusing on managers and their strategic management tools. Due to the fact that there were over 11 million automobiles that were affected and how not one person acted and mentioned the problem. As well as, how managers dealt with the explanation of the scandal to their customers who were affected. The correct approach is necessary in order for the company to keep all of its loyal customers. The heads of the company could possibly provide monthly training for managers to remind them of Volkswagen's values. Possible reasons as to why no one spoke up about the scandal is because of the fear to be different in a situation were everyone agreed on the same notion. Or simply because their diesel car creations will generate an increase amount of profits therefore they did not want to mention the possibility of the illegal activity that was going on in the car manufacturers. With these training courses it can help managers with incubation by focusing on empowering their employees, capitalizing on teamwork, and the main focus which is to gain back the trust from the customers. This way their approach would match the company’s core values and will continue to be on the top leading automobile industries around the world. A couple complications would be how certain managers would have to change the way they are with their employees but a helpful tool for this would be to create an analytical problem-solving chart within the employees. A different short-term recommendation would be to hire engineers from different countries that way there is no bias that is going on in the company. I believe not just Volkswagen should do this but the whole automobile industry should take this strategy. By hiring different engineers, it would help by checking all of the cars before they are sent for inspection. This way they know they would pass the emissions test and will not provide false statements in order to benefit the company. Some complications that can come across this are language barriers or possibly different techniques that are yet to be introduced as well as different training that would need to take place. Budget cost can also be an obstacle since they would have to properly manage their revenue in order for the company to invest more in electric vehicles since that would be their next most profitable product. Besides these there are a couple more recommendations that can be offered in the long run which would be described further in the analysis.

Long Term Recommendations

Volkswagen emission scandal was caused by lack of corporate leadership and poor ethical decisions. The company has recalled, fixed and resold the used diesel vehicles to other countries at a discounted price. However, some customers have lost faith as Volkswagen has failed to follow its own company value standards. Volkswagen must continue to find means to satisfy customers’ preferences and repair its image. The emission scandal created new government laws for the auto industry to protect the health of consumers and the environment. This has actively pushed for improved and new, eco-friendly vehicles across the industry.The first long-term recommendation for Volkswagen is to partner with technology companies such as Johnson Controls. This company is known for its advanced technology in energy efficiency. Their new focus is to develop advance batteries for electric and hybrid cars. Part of their plan is to fully build a manufacturing company in China (HILTON, 2015). China is a country with high import auto-part taxes and high automobile market value. Volkswagen’s partnership with Johnson Controls would give them first move into a close competitive country with lower cost of production. This advantage can give Volkswagen international growth and ability to continue developing eco-friendly cars that will reduce their carbon footprint, thus benefiting the environment. Having direct access to main components, as the smart-car industry evolves, will help Volkswagen retain its leading position against main competitors such as Toyota. The second recommendation is for Volkswagen to support and promote the production of solar and wind power. The company’s plan to withdraw from production of diesel and gas engine cars, after the 2015 diesel scandal, adds pressure to power plants to generate more electricity to meet the new demands of the upcoming electric car revolution. The U.S Energy Information Administration, estimates an increase of 11 percent of coal and gas production. The U.S power plants are responsible for 76 percent of CO2 emissions that contribute to the air pollution and health risks (U.S. 2019). Volkswagen can begin by incorporating solar power systems with its dealers, and installing charging stations for customers to use. This would add value to the company by saving on electricity costs and lessening the impact on the increased need for power plants, while benefiting the community’s environment. This would also increase the attraction for Volkswagen vehicles, as consumers tend to align their moral values with goods they purchase.Increasing the use of wind power would also help to support the additional need for electricity. Wind power does not produce dangerous greenhouse gasses. Large wind turbines need open fields. Partnering with the Department of Agriculture to help find land segments, willing to install turbines sponsored by Volkswagen to generate renewable energy, would benefit the country. As a trade-off for using private land, Volkswagen can power their farmland for free. The ongoing support of renewable energy, starting from harnessing green power to the production of eco-friendly vehicles, will benefit large communities, aside from its customers, by neutralizing CO2 and improving air quality. Volkswagen collaboration with industries outside of the automotive segment, can help become the prefer brand for electric vehicles in market segments like Britain and U.S., with harsher environmental regulations.

Conclusion

Volkswagen's scandal of using illegal emissions cheating devices in millions of their diesel cars caused a major drawback for the company, leading to a loss of revenue and half of their customers. However, despite this setback, Volkswagen managed to regain all lost profits by implementing innovative ideas.

In order to regain consumer trust and beat out competitors, Volkswagen had to review and implement effective strategies. One way for Volkswagen managers to make informed decisions is by using strategic management tools such as a PESTEL analysis. PESTEL stands for political, economic, social, technological, environmental, and legal factors that impact the industry's environment. Volkswagen's business-level strategy is to provide sustainable mobility, with a focus on exciting customers, being an excellent employer, prioritizing the environment, safety, and integrity, and achieving competitive profitability.

The company aims to exceed customer expectations by prioritizing the development of innovative technologies such as electric vehicles, which are designed to meet changing environmental regulations and customer preferences. To achieve this, Volkswagen had to hold back on different ventures and focus on investing in the spread of electric vehicles. Although there is a competitive platform, once Volkswagen is fully invested in this new idea, it will be hard to top since it is one of the companies partnered with the most profitable products.

In addition to focusing on electric vehicles, Volkswagen has consistently grown in sales over the last decade and has enough capital to meet its long- and short-term obligations, as well as higher profit margins than its competitors. Short-term recommendations include hiring skilled engineers from different countries to prevent bias and focusing on the company's value to ensure it matches the ethics of current society.

Furthermore, Volkswagen has prioritized the use of alternative renewable energy sources such as solar and wind power in addition to producing electric vehicles to reduce the company's carbon footprint. Increasing the use of renewable energy will also increase the company's corporate social responsibility towards society.

In the automotive industry, materials such as steel and aluminum are easily accessible at a low cost, lowering the power of suppliers. However, some supplies cannot be outsourced, such as engines, which increases the power of suppliers. Companies in this industry must stand out by using unique parts and supplies, but they must also ensure the quality of their products to remain competitive.

Overall, Volkswagen must work to regain consumer trust and maintain an effective business strategy to remain competitive in the industry. By implementing short- and long-term recommendations, using strategic management tools, and standing out with unique supplies, Volkswagen can continue to provide sustainable mobility and exceed customer expectations. The automotive industry will continue to grow and innovate, and Volkswagen must remain at the forefront of these changes by focusing on sustainable practices and innovative technology.