Volkswagen North America is projecting tripling its sales in the United States (U.S.) market over the next five to eight years. This ambitious plan is the brainchild of the newly installed CEO Stefan Jacoby, who already made major waves by deciding to move Volkswagen North American headquarters away from the “Motor City” in state of Michigan to the more business friendly state of Virginia. With sales numbers already off pace for previous years is Volkswagens (VW) projected growth feasible, and if so what can VW do to reach this goal (Robinson, 2009, pp. 11-1)
Moving the company is a smart business move, many automotive and other businesses have had to leave Michigan for a number of reasons. Michigan’s poor economy is a major one; but attracting educated and skilled staff is another. Michigan’s poor economy and quality of life has been the main factor in causing over fifty percent of University of Michigan graduates seek opportunities elsewhere. They head for urban centers such as Chicago, New York, Washington D.C., and Seattle. Currently there are three times more Michigan State graduates living in Chicago, than in Detroit, many graduates citing quality of life as a major factor in leaving the Detroit metro area (French, 2009). However, for VW there is another major reason for the move, Virginia is offering VW six million dollars in economic incentives, a number that Michigan cannot match. As well as positioning the company in one of its historically strong markets along the east coast. Indicating that attracting qualified staff was another reason for the move, Jacoby said “he did not think it would be difficult to find qualified auto executives and senior staff in the Washington area, given the educational levels in the region” (Press, 2007). I know that when I was considering working for a major automaker, I did not consider any with offices in Dearborn, Detroit, or other parts of Michigan, as having lived in Michigan for a short time, and visited a number of times for business, that it is not a place I would consider moving to. I instead worked with companies with design centers in California, and even applied to the Audi division in Virginia before deciding to stay in California for a few more years.
Moving the company will result in the loss of about 400 jobs, and has been met with sharp criticism by the employees who feel that the German company has failed them by not offering products tailored to the American Market. Jacoby accepted this failure on the part of the company, and VW seems to have taken it to heart designing vehicles specifically for the U.S. market. Joe Ivers, of JD Power and Associates says VW suffers from a cultural divide between Germany and the USA. “VW is more apt to design a feature like a radio or a dashboard with cost and their own sense of taste in mind instead of what the consumer actually wants” (Kiley, 2004).
VW’s is also plagued with a reputation of poor quality that is emphasized when compared to Asian imports such as the automotive powerhouse Toyota (Robinson, 2009, pp. 11-2). In order to reach the lofty goal of 700,000 units a year VW overcome its reputation of poor quality that it has rightfully earned. As someone that has worked in the automotive industry, I have seen VW’s decline in quality over the years. VW in the 1990s was known for producing vehicle that suffered from a number of minor problems, from faulty wiring to interior panels detaching while driving. This is not just my opinion it is backed up by the automotive research firm J.D. Power and Associates. In the J.D. Power Initial Quality Study, based on complaints in the first three months of ownership, VW sank 15% to next-to-last among all brands, while the industry as a whole improved 11%. Over three years of ownership, in the survey by J.D. Power used to gauge reliability, VW ranked 33rd out of 37 brands and was still dropping. This is costing VW one of the automotive industries most prized consumers, repeat customers. One buyer who does not plan to re-up with VW is Sandy Goroff, a Boston book publicist and disgruntled owner of a 2004 Passat wagon. Her car often lurches as if it has been hit from behind after she exits a highway and drives slower on suburban streets. VW officials do not deny the issue exists but have not been able to fix it and at one point suggested, she was driving the car too conservatively. A former Audi owner, she has been negotiating for a replacement. “They’ve done about everything they can to negate my brand loyalty,” Goroff says. Owners of more finicky front-drive Rabbits and Quantums reported electrical problems, blown engines and fragile window regulators and windshield wipers. That, combined with rising prices, almost forced VW to leave the U.S. market (Kiley, 2004).
Another criticism that VW North America has faced is that its advertising has been confusing and misdirected in the 2000s. Even with legendary advertising firm Crispin, Porter & Bogusky at the helm, the message as seemed unfocused. This did not escape the automotive press one writer said of VW “Sign THEN Drive” campaign that; “Neither of these commercials tells me anything about VW cars or why I would want one. The humor is crass, insulting, and juvenile. Along with VW’s recent spate of commercials that show VW drivers constantly getting into accidents, VW seems to have an extremely low opinion of its buyers. Then again, given VW’s poor reliability, high cost of maintenance and repair, and high price points, maybe VW knows exactly what it’s doing” (Ferng, 2008). Jacoby admits that the ad agency should not have been tasked with creating the overall message for the company. “One thing I know is that the ad agency can’t be expected to guide the brand if we don’t know where we are going” (Robinson, 2009, pp. 11-3).
In review, newly appointed VW CEO Stefan Jacoby plans to move the company to a new state in hopes to gain a more competitive advantage in executive labor force, retool the U.S. vehicle lineup, focus on a new corporate message of VW, all with the hope of selling 700,000 vehicles in the USA annually in less than eight years. Implementation of this plan is going to be a monumental task, and the projection of tripling sales is a major commitment. VW may be able to achieve this if the plan of growth by following a strict yet flexible plan. Strict in the since that its goals are unchanging, flexible in that over time the product, processes, and message may be altered to fit the current market conditions.
Strengthens, Weaknesses, Opportunities, and Threats (S.W.O.T.) analysis is a common way to capture a snap shot of a proposed plan. I have applied this process to the VW plan for U.S. below:
- 6 Million Dollars in incentives
- Cost Savings in staffing cut
- U.S. control over U.S. Products
- Poor Quality Reputation
- Lack of Brand Loyalty
- Exchange Rate effects profits significantly
- Connecting to consumers
- Better Employee Pool
- Development of U.S. Products
- Economic Downturn
- Continued Quality Issue
- New Competition in the U.S. Market
While VW North America has a number of strengths within its restructuring plan including the financial incentives of moving its headquarters to Virginia, and taking more control over its U.S. product design and marketing. There are several other advantages to centralizing control in the U.S. instead of having to rely on governance from from Germany. Creating a more nimble organization that is better able to respond to the needs of the unique U.S. market.
This plan also shifts the overall organizational structure and creates a new chain of command that is more autonomous than the previous structure. The company has moved from being a multinational structure to a multidomestic structure. In place of management decisions coming from Germany, they are directed from the U.S. management team that reports to the parent company. VW was still attempting to push its original business model “of one car for all markets” that had been successful in the 1960s, but by the 1980s VW was in major trouble in the U.S. market. VW stumbled badly in the 1970s and ’80s with products buyers could not relate to after decades of mechanically simple and durable rear-drive Beetles and Microbuses (Kiley, 2004). In 1987 VW was forced to shut down it’s only U.S. manufacturing facility in Pennsylvania, and moved all production back to Germany (Buchholz, 2009). Creating vehicles that were specifically tailored to the U.S. market such as the Tiguan crossover SUV, is a major step towards becoming competitive in the largest car market in the world; the 1980’s and 1990’s saw the departure a of a number of European automotive brands attempting to survive in the U.S. market. Companies like Peugeot, Alfa Romeo, Fiat, MG, Triumph, Renault, and several others pulled out of the U.S. market. VW builds cars that compete with those brands in Europe, South America, and Asia, and for many years, they have been attempting to complete again U.S. and Asian carmakers with the same product. VW has shifted to accept that the competition in each market is vastly different; other carmakers have realized this fact a number of years ago, such as Ford Motor Company that employed a multidomestic structure since the 1960’s. Ford created four regional companies, Ford North America, Ford South America, Ford Europe, and Ford Asia, each with its own leadership, vision, and vehicle line directed to their markets (Briscoe, 2004). This is likely to change in the future as the world continues to shrink and markets begin to converge, BMW has shown us that they build a product that is globally recognized be it the new MINI or a M3. There has even been talk at companies like Ford, Fiat, and others to combine global vehicle production on universal platforms that can be tailored to each companies exterior styling, while remaining mechanically identical, such as the new Ford KA, Mazda 1, and Fiat 500 sharing the majority of their parts creating collaborations that have never been done before.
Quality management is another vital determiner of VW’s short and long-term success in the U.S. market. VW has a program that they themselves describe as a quality management system known as “Volkswagen Excellence” that has lead to lower frequency of defects in their products. VW takes a holistic approach to quality management. Not only are the physical products a target of quality management, but also the consumer’s interaction with the company as a part of the quality management process. From creating supplier conventions to reinforce cooperation in development and supply chain; to launching, a quality assurance organization within to react faster to consumer concerns VW is focused on the consumer (Volkswagen AutoGroup, 2006).
Volkswagen will need to implement this plan and stick to it, the one major factor that is out of their control is the economy. At the time of this writing U.S. car sales are at their weakest in decades. This plan was put into place in 2007, and the move was made in April 2008. Jacoby upped the figure in an interview given at the 2008 North American Auto show in Detroit, by projecting that VW would sell 800,000 cars annually in the U.S. by 2018. When pressed on how the company would reach a goal such as this in such a short time, considering that in 2007 VW sold 230,000 vehicles Jacoby said, that they were setting up the target so that the whole organization knows what the mission is. It is also to drive the product planning, design and supplier constituencies. They want to pressure the whole system (Kiley D. , 2008). Now just over a year later the overall sales for VW North America decreased 3.2 percent a company spokes person said “Despite these economic conditions, 2008 was still a good year for Volkswagen. We relocated our North American headquarters to Herndon, Virginia bringing us closer to our customers, we announced an all-new North American production facility will be built in Chattanooga, TN vehicle that allowed Volkswagen to buck the economic downturn as our sales remained close to our 2007 totals. Volkswagen of America has a plan in place for a successful future here in the U.S.” (Volkswagen North America, 2009). It’s seems that VW has been implementing its plan without adjusting for the current economy, it will be interesting to see how it plays out over the next several years of the plan. With the current economic condition, federal regulations for gas mileage and green house gasses, and a globalizing of platforms, VW may find itself rethinking its plan sooner than expected.
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