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
11
2,
82
6
115,000
110,000
105,000
100,000
10
4,
18
6
10
7,
04
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
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References
Brodrick, Sean. Set Your Sights On Asia’s Sleeping Elephant. http://www.escapeartist.com/efam/70/Invest_In_India.html
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(March 7, 2006) >
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Volkswagen AG