Volkswagen in China: Running the Olympic Marathon
Som, Ashok, European Business Forum
Bernd Pischetrieder, CEO of Volkswagen, took a few minutes from his busy agenda to reflect on the group's position. Although VW was still the largest carmaker in Europe, times were difficult. There had been losses in North America and there were serious productivity problems in Germany. And worse still, General Motors had replaced Volkswagen as the leading carmaker in China. This was a personal blow, for China had been one market that he was proud of. When most of his competitors had failed or had marginal success, VW had enjoyed leadership right from the time of market entry in 1985. But that was history. In 2000, VW enjoyed more than 50 per cent of the Chinese passenger car market, but this had slumped to 15 per cent by 2005. Winfried Vahland, who was responsible for the Chinese operations, had launched an "Olympic programme" to restore VW's position of leadership by 2008, the year of the Olympic Games in Beijing. Pischetrieder had faith in Vahland, but he remained concerned. Would Vahland be able to roll out this marathon programme and succeed in restoring the company's position in China?
The Volkswagen stable
Founded in 1937 during the Nazi dictatorship in Germany, Volkswagen literally means "the car of the people". The company is based in Wolfsburg, Germany. In the 1950s and 1960s, the famous Beetle and the Volkswagen Bus helped turn the company into an international success story. Another iconic brand, the Golf, was launched in 1974. Other successful products followed: the Scirocco, the Golf GTI, the Lupo and the Touareg.
Organisationally, Volkswagen evolved into the Volkswagen Group, which also included Audi and Seat, which joined the Group in 1986, and Skoda, which VW acquired in 1991. It also included some exclusive elite brands such as Bentley, Bugatti and Lamborghini, in 1998. Services such as leasing, insurance and fleet business were also developed along with Europcar, one of the largest car rental companies in Europe. Within the group, sales revenue and operating profits were broken down into four geographic regions: North America, South America/South Africa, Asia and Europe/Rest of the World. The group's passenger car business was divided into two divisions, one under the leadership of Audi and the other Volkswagen. These two divisions were responsible for the results for their respective clusters worldwide.
VW had about 11.5 per cent of the car market worldwide. Its strongest position was historically Western Europe, where its market share was 18.1 percent. Its lowest market share was in North America with 5.7 percent. VW was much more international than other German carmakers. Although it still described itself as a "European-oriented company", in 1990 VW sold two-thirds of its cars outside Germany, and produced 40 per cent of its units overseas. But while BMW sold more than half its cars outside Germany, less than four per cent of its production sites were abroad.
Of Volkswagen's 343,000 workers, about 179,000 were based in Germany, Including 103,000 in Wolfsburg. But Germany had become the most expensive place in the world to manufacture cars. The group needed to cut thousands of jobs and increase efficiency among those who remained. VW's sales were also suffering around the world. Between 2003 and 2004, VW lost market share in all regions except South America.
Volkswagen in China
The first Western auto manufacturer to enter China, VW opened its first office in Beijing in 1985. There followed a successful joint-venture partnership and a near monopoly in government and taxi sales for nearly 20 years. VW was the undisputed leader of the Chinese passenger car market until 2005.
The strategy of targeting taxi and official car fleets enabled VW to sell high volumes and thus harness economies of scale. The taxis become a permanent showroom for the brand, allowing VW to become well known and acquire credibility in China. …