Transcript Slide 1
Team Maxxim
presents
Volkswagen AG
Marketing Strategy Recommendation
EBA 605, Dr. J. Coleman
Saturday, April 22, 2006
Agenda
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
Current Situation & Trends
Performance Review
Key Issues
Objectives
Marketing Strategy
Action Plan
Projected Profit-and-Loss Statement
Controls
Contingency Plans
Volkswagen AG
Market Situation
Mature passenger car market in North America and
Europe
Sales expected to rise 0.6% and 1.6% for North
America and Europe, respectively, through 2009
Global passenger car sales are forecast to grow by
around 7 million units through 2009, or just under 3%
annually
India and China is expected to account for more than
half of this growth
Volkswagen AG
Car Sales According to Groups, Worldwide
Mil. Vehicles
GM
8.2
Ford/Volvo
6.8
Toyota/Daihatsu
6.7
Volkswagen
5.2
DaimlerChrysler
4.7
PSA
3.4
3.0
Honda
2.9
Nissan
2.5
Renault
Fiat/Ferrari
BM
W
1.9
1.2
Source: manufacturer`s data, JAMA.
Volkswagen AG
Global Competitive Overview
Global Top Auto Companies
4% 3%
5%
GM
18%
Ford
7%
Toyota
Volkswagen
DaimlerChrysler
7%
14%
PSA/Peugeot-Citroen
Nissan
7%
Honda
10%
14%
11%
Renault
Fait/Ferrai
BMW
Volkswagen AG
*Numbers based on 2004 Marke tshare
WORLD CAR POPULATION
Developing World = 300% Increase Between 1995 & 2020
Greater Demand
& Less
Resources
Accelerated
Greenhouse
Emissions
Environmental &
Energy Trends =
Negative
Economic
Impacts
World Car
Population
TREND IN WORLD CAR POPULATION
800000000
700000000
600000000
500000000
400000000
300000000
CARS IN REST OF WORLD
200000000
100000000
0
YEAR 1930
CARS IN U.S.
1940
1950
1960
1970
1980
1990
2000
2010
2020
Volkswagen AG
Competitive Situation
General Motors, Nissan and Toyota have cut into
Volkswagen’s market share
Volkswagen once held a 50% market share in China,
it’s now around 20%
China and India both serving as key manufacturing
locations with major players
Volkswagen AG
Volkswagen Group Market Share - 2005
Volkswagen AG
Corporate Overview
HQ: Wolfsburg, Germany
US Operations: Auburn Hills, MI
Europe’s #1 automobile manufacturer
Annual production: 5M vehicles
Annual sales: $121,345/ 10.9 YOY growth
Employees: 342,502 worldwide
Volkswagen AG
Key Milestones
1930s
1940s
1950s
1960s
Factory opened in
Production of first
VW begin building
Wolfsburg, Germany
Volkswagen
Company turned
over to German
government
foreign plants
Launched “Beetle” in
US market
Developed Microbus
Sold stock to the
German public
Purchased Auto
Union (AUDI)
US Beetle sales took
off
1970s
1980s
1990s
2000s
Built China’s largest
auto plant
Integrate Skoda
Acquires Rolls-Royce
and Bugatti
Launched New
Beetle in US
Spent 3.1B to
modernize factories
The final Beetle
ended a 70-year run
Invested 1.7B in
China (Asia/Pacific)
Bernd Pischetsrieder
joined company
Beetle discontinued
Begin car venture in
in every country except China
Mexico
Purchased SEAT
Formed Autolatin in
Brazil
Volkswagen AG
Volkswagen Global Marketing Mix
Brand portfolio
Volkswagen
Audi
Seat
Škoda
Bugatti
Bentley
Lamborghini
Commercial vehicles
Development of
distribution partners
Separated
distribution channels
for each brand
International
standardization of
dealers
Unique brand identity for
each nameplate
Complete product range
Mostly standardized products
with minor adaptations
1
Setting prices with regard to
competitors
Price discrimination across
regions
No price competition in
emerging markets
Strict cost controlling
Global
Marketing Mix
4
Localized communication
Emphasis on the European
market
Brand advertising
Emotionalization
2
3
Volkswagen AG
Volkswagen Group
Automotive Division
VW Brand
Group
VW P Cars
*Passat
*FOX
*Jetta
*Beetle
*Golf
Skoda
Bentley
Bugatti
Audi Brand
Group
Commercial
Vehicles
Audi
SEAT
Lamborghini
Buses and
Vans
Financial
Services Division
Other
Companies
Financial
Services
Europcar
Financing
Dealer &
Customer
Financing
Rental
Business
Servicing
Leasing
Insurance
Fleet business
Volkswagen AG
Source: www.volkswagen-ir
Key Issues
Extreme global competition, particularly from
American and Asian manufacturers
Slow revenue growth due to inflated cost of raw
material and rising administrative costs
Stagnant demand because of overcapacity and
product proliferation in western markets
Controlling cost while simultaneously
generating revenue
Rapid foreign investment in Chinese and Indian
markets
Volkswagen AG
How do we tackle these issues?.....
Volkswagen AG
Objectives
Increase operating cash flow
Increase sales and market share
Expand targeted-market segment
Maximize fuel efficiency
Be first to market with new product
Introduce hybrid vehicle, Ŝkoda Octavia, in
India
Conduct financial feasibility study
Volkswagen AG
Financial Feasibility
SIMPLYCLEVER
ŠKODA AUTO / ŠKODA GROUP –
PROFIT BEFORE TAXATION
IFRS CZ, Škoda
Group
10,073
Millions of CZK
ŠKODA AUTO a.s. according to
ČÚS*
4,815
2,875
163
0.3
3.2
4,843
4,175
3,702 3,814
5.4
2,674 2,489 2,517
3.5
3.5
3.1
1.7
1.7
1.7
3.0
3.2
Profit before taxation
Rate of turnover return (%)
1996
1997 1998 1999 2000 2001 2002 2003 2004
* ČÚS – Czech Accounting Standards
2004
2005
Financial Feasibility – Labor Costs
Exhibit 4A
Average annual base pay
India
2007
# of
Employees
HR manager
$15,100.00
3
Marketing manager
$14,300.00
1
Project manager
$10,000.00
2
Software development engineer
$10,300.00
$
8,400.00
$
5,700.00
$
8,200.00
$
4,700.00
$
1,600.00
$
1,900.00
1
Position
Financial analyst
Accountant
Senior customer service officer
Sales representative
Customer service assistant
Production worker (skilled)
1
Total Cost
$
45,300.00
$
14,300.00
$
20,000.00
$
10,300.00
$
2
2
3
5
280
300
$
8,400.00
$
11,400.00
$
16,400.00
$
14,100.00
8,000.00
$
532,000.00
$
680,200.00
Salary
2008
# of
Employees
$15,855.00
3
$15,015.00
1
$10,500.00
4
$10,815.00
$
8,820.00
$
5,985.00
$
8,610.00
$
4,935.00
$
1,680.00
$
1,995.00
1
1
Total Cost
$
47,565.00
$
15,015.00
$
42,000.00
$
10,815.00
$
2
2
3
5
8,820.00
$
11,970.00
$
17,220.00
$
14,805.00
$
428
8,400.00
$
853,860.00
450
$1,030,470.00
Volkswagen AG
Financial Feasibility – Labor Costs
Exhibit 4B
Average annual base pay
Salary
2009
# of
Employees
HR manager
$16,647.75
3
Marketing manager
$15,765.75
1
Project manager
$11,025.00
6
Software development engineer
$11,355.75
$
9,261.00
$
6,284.25
$
9,040.50
$
5,181.75
$
1,764.00
$
2,094.75
1
Position
Financial analyst
Accountant
Senior customer service officer
Sales representative
Customer service assistant
Production worker (skilled)
1
Total Cost
$
49,943.25
$
15,765.75
$
66,150.00
$
11,355.75
$
2
2
3
5
$
9,261.00
$
12,568.50
$
18,081.00
$
15,545.25
8,820.00
576
$1,206,576.00
600
$1,414,066.50
Salary
2010
# of
Employees
$17,480.14
3
$16,554.04
1
$11,576.25
6
$11,923.54
$
9,724.05
$
6,598.46
$
9,492.53
$
5,440.84
$
1,852.20
$
2,199.49
1
1
Total Cost
$
52,440.41
$
16,554.04
$
69,457.50
$
11,923.54
$
9,724.05
$
13,196.93
$
18,985.05
$
16,322.51
$
9,261.00
2
2
3
5
576
$1,266,904.80
600
$1,484,769.83
Volkswagen AG
Financial Feasibility – Labor Costs
Exhibit 4C
Average annual base pay
Salary
2011
# of
Employees
HR manager
$18,354.14
3
$
55,062.43
Marketing manager
$17,381.74
1
$
17,381.74
Project manager
$12,155.06
6
$
72,930.38
Software development engineer
$12,519.71
1
$
12,519.71
Financial analyst
$10,210.25
$
6,928.39
$
9,967.15
$
5,712.88
$
1,944.81
$
2,309.46
1
$
10,210.25
2
$
13,856.77
2
$
19,934.30
3
$
17,138.64
5
$
9,724.05
Position
Accountant
Senior customer service officer
Sales representative
Customer service assistant
Production worker (skilled)
Total Cost
576
$1,330,250.04
600
$1,559,008.32
Volkswagen AG
Financial Feasibility
Reported Annual Income
Statement
Actual
Actual
Actual
2003
2004
2005
2006
2007
2008
2009
2010
2011
Auditor Status
Dollars
Dollars
Dollars
Dollars
Dollars
Dollars
Dollars
Dollars
Dollars
Consolidated
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Scale
millions
millions
millions
millions
millions
millions
millions
millions
millions
Sales revenue
109,394
121,346
112,826
116,211
119,697
123,886
128,842
135,284
142,048
Cost of sales
97,597
Gross profit automotive
11,798
division
Gross profit financial services
division
106,992
97,576
100,503
103,518
106,624
109,822
113,117
116,510
14,353
15,250
15,708
16,179
17,263
19,020
22,167
25,538
-
-
-
-
-
-
-
-
9,251
8,352
7,517
7,211
6,920
6,644
6,382
6,133
Distribution costs
9,880
10,291
10,718
11,255
11,845
12,467
13,152
13,876
Administrative expense
Selling & distribution
expenses
General administration
expenses
2,800
2,852
2,904
3,021
3,141
3,267
3,398
3,534
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other operating income
5,393
5,602
5,819
6,052
6,294
6,545
6,807
7,080
Other operating expenses
3,477
3,162
2,875
2,990
3,109
3,234
3,363
3,498
11,798
3,589
4,548
5,029
4,965
5,461
6,598
9,061
11,710
22,339
12,840
12,900
12,546
12,175
12,381
13,242
15,443
17,843
Currency
Depreciation & Amortization
Operating
profit
Net Cash Flow
10,541
Projected Projected Projected Projected Projected Projected
Volkswagen AG
Financial Feasibility – Break Even Point
Break Even Point - Volkswagen India
$900.00
$800.00
$700.00
$600.00
$500.00
$400.00
$300.00
$200.00
$100.00
$-
Break Even Point
Year 1 Year 2 Year 3 Year 4 Year 5
Volkswagen AG
Financial Feasibility – Sales Per Year
Sales per Year
Volkswagen
Exhibit 2
Dollars in millions
125,000
12
1,
34
6
120,000
115,000
110,000
105,000
100,000
10
4,
18
6
10
7,
04
6
11
2,
82
6
10
9,
39
4
10
5,
12
1
95,000
90,000
2000
2001
2002
2003
2004
2005
Year
Scale Sales revenue
Log. (Scale Sales revenue)
Volkswagen AG
Financial Feasibility – Sales Per Year
Cost of Sales
Volkswagen
Dollars in millions
Exhibit 3
110,000
106,992
105,000
100,000
97,597
95,000
90,000
97,576
91,018 91,384 89,694
85,000
80,000
2000
2001
2002
2003
2004
2005
Years
Cost of sales
Log. (Cost of sales)
Volkswagen AG
Weighted Average Cost of Capital
Cost of Capital
Component
Weight
Cost
Weighted Cost
Common Equity
0.75
$125,000,000
$97,750,000
Debt
0.15
$125,000,000
$18,750,000
0.1
$125,000,000
$12,500,000
0.1291
$125,000,000
$16,137,500
Preferred Stock
WACC
Volkswagen AG
Financial Feasibility – Profit/Loss Statement
Projected Net Cash Flow for India
Investment Outlays: Long Term Assets
Equipment
Additional Net Working Capital
Operating Cash Flows over Project's Life
Units sold
Sales
Costs (from cost sheet)
Net Revenue
Depreciation (from depreciation - input sheet)
Before-tax-income
Taxes (40%)
Net Income
Add Depreciation
Net Operating Cash Flow
0
2006
$ (125,000,000.00)
1
2007
2
2008
3
2009
4
2010
2500
$ 75,500,000.00
$ 2,130,200.00
$ 73,369,800.00
$
25,000,000
$
48,369,800
$ (30,200,000.00)
$
18,169,800
$
25,000,000
$
43,169,800
3750
$ 113,250,000.00
$ 3,242,970.00
$ 110,007,030.00
$
25,000,000
$
85,007,030
$ (45,300,000.00)
$
39,707,030
$
40,000,000
$
79,707,030
5000
$ 151,000,000.00
$ 3,000,000.00
$ 148,000,000.00
$
25,000,000
$
123,000,000
$ (60,400,000.00)
$
62,600,000
$
23,750,000
$
86,350,000
5000
$ 151,000,000.00
$ 3,050,000.00
$ 147,950,000.00
$
25,000,000
$
122,950,000
$ (60,400,000.00)
$
62,550,000
$
15,000,000
$
77,550,000
5
2011
$
$
$
$
$
$
$
$
$
5000
151,000,000.00
3,075,000.00
147,925,000.00
25,000,000
122,925,000
(60,400,000.00)
62,525,000
13,750,000
76,275,000
$
76,275,000.00
Salvage Cash flows
After Tax Salvage Cash Flows from equipment
Return of NOWC
Net Cash Flows
Net Terminal Cash flows at Year 4
Salvage Value
Tax on Salvage Value
Recovery on NWC
Net Terminal Cash Flow
$100,000,000
$40,000,000
$24,000,000
$60,000,000
$24,000,000
$14,400,000
$36,250,000
$14,500,000
$8,700,000
$21,250,000
$8,500,000
$5,100,000
$7,500,000
$3,000,000
$1,800,000
Volkswagen AG
Marketing Strategy
Enhance regional presence and geographical
spread
Increase customer orientation – Leapfrog
approach
Niche penetration
Technological differentiation
More efficient use of resources
Volkswagen AG
Action Plan
Select “premier” dealerships to carry the Ŝkoda hybrid
Develop dealer training programs
Project and sales managers collaborate to acquire
new customers and increase customer loyalty
Build awareness of Ŝkoda hybrid through sales
promotions and easy financing
Use Volkswagen Group’s brands to increase customer
awareness
Volkswagen AG
Volkswagen Group Brand Portfolio
Sophistication
Zones of
Low Demand
Zones of
Low Demand
Functionality
Emotion
Volkswagen AG
The VW Customer
Positioning Statement:
For the cost conscience buyer, Volkswagen
offers reliability and value.
Value Proposition:
– Target Market: Cost conscience buyer
(parents, females, young adults)
– Benefits offered: German technology
– Relative price: Affordable, reliable
Volkswagen AG
Controls & Contingency Plan
Design service programs that address potential
concerns
Continued research and development aimed at
product improvements or modifications that appeal to
target segment
Increase penetration with market segments and/or
distribution intensity
Volkswagen AG
The Golden Steering Wheel to the New Škoda Octavia
The new Škoda Octavia
won the Bild am
Sonntag‘s prestigious
Golden Steering Wheel
award during a
ceremony in Berlin.
Volkswagen AG
Look
how
roomy….
Volkswagen AG
Look at
that
automatic
console!
Volkswagen AG
Ŝkoda Octavia Hybrid
Volkswagen AG
Ŝkoda Octavia Hybrid
Volkswagen AG
References
Brodrick, Sean. Set Your Sights On Asia’s Sleeping Elephant. http://www.escapeartist.com/efam/70/Invest_In_India.html
Culp, Eric, “VW in Fresh Trouble as it Withdraws US Model”, Knight Ridder Tribune Business News, November 2005, pg. 1.
Datamonitor. Volkswagen AG: Company Profile <http://www.datamonitor.com (October 2004)>
Datamonitor. Volkswagen AG: Company Profile <http://www.datamonitor.com (October 2005)>
Eisenstein, Paul A. Putting things right at the “people’s car” company. TheCarConnection
<http://www.thecarconnection.com/Auto_News/Profiles_QA/QA_VW_CEO_Bernd_Pischetsrieder.s193.A7952 January 10, 2005)>
Flint, Jerry, “The Fast and the Furious”, www.forbesauto.com, January 2006.
Fondon, Daren, “A Pitch to the Rich”, Time Online, November 2003.
“ForMotion Program and New Model Initiative Generate Significant Increase in Volkswagen's Earnings.” The VWGazette
<http://vwgazette.blogspot.com/2006/03/formotion-program-and-new-model.html
(March 7, 2006) >
Hoover’s Company Information, Hoovers, Inc. 2006.
Landler, Mark, “Volkswagen Chairman Step Down”, New York Times, January 2006.
Landler, Mark, “Porsche to Build a 20% Stake in VW”, The Detroit News – Auto Insider/New York Times News Service, September 2005.
Pischetsrieder, Bernd. “Letter To Our Shareholders.” Annual Report 2005 <http://gb.volkswagen.de/index.php@id=757&type=2.html
(March 7, 2006)>
Power, Stephen, “Once Hot Volkswagen Attempts to Reverse U.S. Sales Decline”, Wallstreet Journal (Eastern Edition), New York, NY,
September 2005, pg A8
Racanelli, Vito J., “Turn Around Ahead at Volkswagen”, Barron’s, May 2005, Volume 85, Issue 20, pg 26.
“Škoda Reaches Record Sales in March and the First Quarter of 2006.” Škoda Auto <http://www.volkswagen-ir.de/fileadmin/vwir2/dokumente/inv_news/2006/Q2/20060410_Skoda_e.pdf (October 4, 2006)>
Source: adapted from P. Dicken (2003) Global Production Networks In Europe And East Asia: The Automobile Components Industries,
GPN Working Paper 7, University of Manchester, http://www.sed.manchester.ac.uk/geography/research/gpn/gpnwp7.pdf
Tierney, Christine. “Teutonic infighting tests VW's resolve to revive operations.” The Detroit News – Auto Insider/The Insiders
<http://detnews.com/apps/pbcs.dll/article?AID=/20060314/AUTO02/603140345/-1/ARCHIVE (March 14, 2006)>
Thomas, Chad & Archey, Sheenagh, “Porsche Buys 20% in VW’s Shares to Prevent Takeover”, Bloomberg News,
http://quote.bloomberg.com/apps/news, September 2005
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Xinhuanet, “Volkswagen sales in China hit record.” New Age Business <http://www.newagebd.com/2005/oct/13/busi.html (October 13,
2005)>
Volkswagen AG