1. CEO Winterkorn intends to make VW the world’s number 1 automaker by 2018. Do you think this is an attainable goal, or is it an “exaggerated” or “stretch” goal designed to motivate employees?

2. In VW’s advertising, the “Das Auto” tagline encourages potential buyers to associate the brand with its German heritage. Is this the right approach for VW?

3. Which rivals present the strongest competitive threats to VW’s strategic plans?

4. What are some of the risks inherent in VW’s relentless drive to become the world’s number 1 auto maker?

Volkswagen executives acknowledge that if they are to triple the number of vehicles sold in the United States, they must make cars that appeal to American drivers. Although VW’s portfolio of brands includes upscale nameplates such as Audi, Bentley, Bugatti, Lamborghini, and Porsche, the Volkswagen brand itself accounts for about 50 percent of annual revenues.

Company Background

Historically, one of VW’s sources of competitive advantage has been its core competence in the design and manufacture of small, fuel-efficient gasoline engines. Diesel engines are another strength; both types of engines offer the kind of money-saving performance that drivers seek when gasoline prices are high. Several VW models also rank high for crash safety. Given these strengths, why does VW currently rank only second among global automakers? And why has it captured only 3 percent of the U.S. car market? Christian Klinger, Volkswagen Group board member and the executive in charge of sales and marketing for the Volkswagen brand, offers this explanation: “We need the right products and local production,” he says. “In the past maybe we had the right product but not the right price. Or the right price and not the right product.”

Volkswagen enjoys the distinction of being the number 1 car maker in Europe and the second-largest in the world. Worldwide, the company sold 10 million vehicles in 2014. The compact Golf is the best-selling car in Europe. Volkswagen’s market share in Western Europe is 24.4 percent; in Central and Eastern Europe, its share is 15.4 percent. When the new midsize Passat was introduced, initial European demand for it was so strong that there was an eight-month waiting list. The company can boast that its giant Wolfsburg plant is home to the most automated production line in the world, capable of completing 80 percent of a car’s assembly by machine. Outside Europe, Volkswagen has also achieved considerable success. In Mexico, for example, the company’s share of the passenger car market is 16.7 percent. Volkswagen is also the number 1 Western auto manufacturer in China, where it commands nearly 21 percent of the market.

A deeper understanding of Volkswagen’s place in the auto industry requires an overview of then chairman Carl Hahn’s attempts to implement his vision of VW as Europe’s first global automaker. Indeed, management guru Peter Drucker credited Volkswagen for developing the first truly global strategy more than 40 years ago. By 1970, the Beetle was a mature product in Europe; sales were still moderately strong in the United States and were booming in Brazil. Drucker described what happened next:

The chief executive officer of Volkswagen proposed switching the German plants entirely to the new model, the successor to the Beetle, which the German plants would also supply to the United States market. But the continuing demand for Beetles in the United States would be satisfied out of Brazil, which would then give Volkswagen do Brasil the needed capability to enlarge its plants and to maintain for another ten years the Beetle’s leadership in the growing Brazilian market. To assure the American customers of the “German quality” that was one of the Beetle’s main attractions, the critical parts such as engines and transmissions for all cars sold in North America would, however, still be made in Germany. The finished car for the North American market would be assembled in the United States.