Case Analysis #1: Volkswagen Strategy 2025: Shifting Gears in Disruptive Times
What is the key problem or challenge?
Due to Volkswagen’s past scandals and intense pressure to improve their competitive
advantage, the company responded with a new strategy called “TOGETHER-Strategy 2025”.
Due to disruptions in the auto industry, they are concerned whether the strategy will be effective
in transforming into a mobility company as well as gaining a competitive advantage within the
industry that is shifting towards environmentally friendly vehicles.
Using Porter’s Five Forces Framework, conduct an analysis to identify Volkswagen's
challenges.
The bargaining power of suppliers is moderate. A growing and the increasingly
globalized world creates high demands for the same raw materials, especially when the auto
industry is pushing towards electric vehicles. However, the company spends billions in R&D and
believes in the cost-saving strategy of manufacturing in-house. Also, within a large industry,
there are many suppliers. Therefore, Volkswagen does not have to worry about losing a supplier
as they can find another one at low costs, especially since it is projected that battery prices will
drop. Suppliers do not have incentives to drop Volkswagen, especially since they work with
many other brands and models.
The bargaining power of customers is about medium to high. Volkswagen has a large
variety of models but still exists in a wide array of substitutes as well as changing trends. One of
those trends is consumers are now more conscientious of their carbon footprint and are in search
of environmentally friendly transportation. Also, new buyers are focusing more on the
technology installed in their vehicles, which incentivizes them to consider more options while
companies continue to advance in what they can offer. With new techs like self-braking, collision
protections, lane assistance, and many more features, consumers expectations are rising.
Furthermore, consumers are moving away from finding the incentives of owning a car of their
own as ridesharing booms. Consumers have more options now than ever and will continue to
have more as the industry changes its strategy towards electric cars.
The threat of new entrants is low due to the barriers to entry are high. The reason for this
is typical for large industries like the auto industry. There are high start-up costs and difficulty
for a new company to achieve economies of scale while most of the industry is already jumping
ahead on the new electric car trend. Customers tend to be loyal to current brands so it would also
be difficult for new companies to build a strong brand image in a short amount of time. By the
time they do, customers would already be testing out other established brands before a new one
goes through the usual trial and error.
The rivalry among competitors is extremely high. Most companies try to grab the market
share in the industry as it is. Now that electric cars are a new trend, competition has become
hyperactive. The barriers to exiting the industry are strong as well, resulting in significant losses
for the company, forcing other competitors to stay in the game, and raising rivalry levels.
The threats of substitutes are moderate. Increasing petrol prices, as well as government
attempts to promote environmentally friendly transportation, encourages more people to consider
alternatives such as public transportation, commuting, and so on. Automakers have been able to
acquire these customers to varied by manufacturing automobiles with great fuel efficiency.
Often, consumers who prefer to use their own cars rather than alternatives do so out of
convenience. With the new initiatives of increasing the number of electric cars on the streets,
customers find them more suitable compared to diesel cars due to convenience, price, and a clear
conscience.
Conduct a strengths, weaknesses, opportunities and threats (SWOT) analysis for
Volkswagen identifying its strategic advantages as well as the extent to which those
advantages can be sustained in the face of an increasingly competitive automobile industry.
Key strengths and advantages of Volkswagen include having the widest product portfolio
among all automobile companies with 12 global brands such as Porsche, Audi, Bently, Bugatti,
and many more. Another strength is their strong global reach and presence. Volkswagen's
revenue is significantly more distributed among product categories of their different brands and
geographic locations than its competitors. Their diversified brand enables it to target various
consumer segments to meet their needs during changing trends and a competitive market.
Additionally, the new strategy would implement a separate division in China which would
capture the most evolving global automotive market projected to lead that market for electric
vehicles.
Practically the biggest weakness Volkswagen faces is their exposure of secret software
overriding emission tests in millions of engines in 2015, also known as “Dieselgate”. They
eventually pleaded guilty to wire fraud, customs violations, and obstruction of justice. This
created terrible publicity and severe damage to the VW brand. This scandal ultimately led to the
decision of the 2025 strategy. Another weakness that was exposed by Dieselgate is its
governance structure. It is said to lack oversight and accountability with no clear lines of
authority which is the making of an eventual scandal. Their corporate culture was yet another
exposed weakness. The work environment was described as arrogant and ruthless. With intensive
micromanagement, there was no leniency for mistakes which caused high pressure amongst its
employees.
Opportunities the company can take advantage of are the uprising market of electric cars.
Being an already established auto company with a strong brand image, they are head-to-head
with their competitors in manufacturing electric vehicles. The demand for autonomous driving is
increasing rapidly which is a market Volkswagen can catch up to as well. Opportunities in
economic expectations include the drop of battery prices and the continuation of growth in
annual global unit sales until 2030.
A large threat Volkswagen faces is the intense competition. Not only do their rivals
include the Big Six, but it also includes technology firms that are entering the auto industry such
as Apple, Google, and Uber. Another threat is companies like Tesla who already have experience
and recognition in both electric and autonomous vehicles. Also, with ridesharing platforms,
millennials and Gen Z reduces their need to individually own a car.
Evaluate Volkswagen's strategy 2025. What is your action plan for its CEO? Please be
specific.
The 2025 strategy consists of introducing 30 new electric vehicles, developing
competence in battery technology and digitalization, mobilizing in-house resources, and
harnessing external inputs to increase efficiency and profitability. Based on the analysis I’ve
created above, I have a few action plans the CEO can implement to relieve some challenges. One
of the biggest challenges they face is due to the effects of Dieselgate. One initiative they should
begin is to improve their brand image to regain consumer trust. To do this, they should increase
their efforts in sustainability significantly by partnering with organizations whose objective is
just that such as the National Association of Clean Air Agencies (NACAA). Additionally, they
should implement a change initiative to their company culture and work environment. This can
be done internally through leadership training and change in expectations through clear cultural
values. Another plan could be to acquire smaller startups that have developed skills and the
technology needed for Volkswagen to begin manufacturing autonomous and electric vehicles.
This would be costly, but it would reduce the cost of training and finding many experts to run the
initiative.
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