Magazine article Management Today

Motor Mouth - Drive a True Bargain

Magazine article Management Today

Motor Mouth - Drive a True Bargain

Article excerpt

It is nearly your last chance to participate in one of the weirdest ever experiments in automobile economics. The Volkswagen group is, by some technical measures, the most impressive and successful manufacturing organisation in Europe. By financial measures, it is in need of emergency re-capitalisation, a potential black hole for money when it implodes (as some say it must).

For 20 years the company that made its fortune with a single product, the famous Beetle, has been diversifying into a wider and wider range of products and brands. Not content with Volkswagen itself and its posh cousin Audi, the company acquired the Spanish SEAT and the Czech Skoda concerns. More recently it has acquired Bentley and even Lamborghini.

The logic was that the German brands would appeal to the prosperous, clean-cut northern Europeans and Americans; the Latins, with their late nights and fun-loving ways, could have SEATs; and Skoda was for the emerging markets in eastern Europe.

What made this ambitious plan feasible was the notion of platform-sharing.

The platform of a car is the most expensive bit, a complex metal fabrication fundamental to the product that requires unfathomably large investment in design, tooling and manufacturing. All the elements that seduce the eye - bodies, engines, wheels - are cheaper and easier to change.

The further you can spread the costs of this platform, the better. So, the group invests mightily in a new platform for the fourth-generation Golf, but divides the costs between all its divisions. All those little Audis, SEAT Toledos and Leons, Skoda Octavias and stuff are just Golfs in national costume.

But with a scheme that made great sense to the accountants, there were important emotional and practical shortcomings. First, Volkswagen's own brand and the lustrous Audi were harmed by association with the dago SEAT and the Slavic depressive Skoda. Second, the costs of engineering unique bodies and interiors in Spain and the Czech Republic and of marketing them, were crippling ... while cannibalising the Golf's territory. This was especially daft when all Miguel and Vaclav wanted was a VW, not a cheapo ethnic version.

Third, because the platform is so inflexible and exigent, it required an awesome amount of commitment, which in turn produced an awesome amount of consumer interest and vast profits as a novelty. …

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