SWOT Analysis of Volkswagen Motors 2019.
Table of Contents
|Company Name||Volkswagen Motors.|
|Net Revenue.||€ 235,849 million.|
|Net Income.||€ 4,620 million.|
|Brand Owned.||Audi, SKODA, SEAT, Bentley, Porsche, Volkswagen Commercial Vehicles, VW passenger casr, Traton Group, Ducati, Scania, MAN.|
|Competitors.||Ford, Honda, Toyota, BMW, Chevrolet, Hyundai, Tesla, Mercedez.|
Large Product Portfolio :
Volkswagen owns 12 brands. Its business consists of two main divisions including Automotive and financial services divisions. The automotive division is made up of three segments including Passenger cars, commercial vehicles and power engineering. This division of Volkswagen makes and sells passenger cars, light commercial vehicles, trucks, buses and motorcycles, as well as genuine parts, large-bore diesel engines, turbomachinery, special gear units, propulsion components and testing systems. The Ducati brand operates under the Audi brand and falls under the Passenger Cars Business Area.
The company made around 11 million vehicles in 2018 and sold 10.9 million units. Vehicle sales grew by around 1.1% in 2018 compared to the previous year. Sales revenue grew by 2.7% in 2018 against the previous year.
Research & Development : –
Volkswagen is an innovative brand. The company invests a large sum every year in research and development. Competition in the automobiles industry is very high and to retain its market leading position, the company places heavy focus on innovation. Research and development expenses of Volkswagen in 2018 grew to $13.6 billion against $13.14 billion in 2017. The company is planning to invest € 30 billion in electrical driving over the next five years. It also plans to expand its portfolio of electric cars to 50 models by 2025.
Financial Strength : –
Despite the challenging situation, financial performance of Volkswagen has improved every year. Revenue of the brand grew to €235.85 billion in 2018 from €229.55 billion in 2017. Operating profit of Volkswagen climbed to €17.1 billion in 2018. Gross Profit was €46.35 billion in 2018, rising from €43.55 billion in 2017.
Customer base : –
Volkswagen has a large portfolio of several brands that target various customer segments. It offers a large product range including competitively priced passenger cars, luxury cars, SUVs and trucks. The company has a large customer base from several countries all over the world. It has operations across more than 150 countries. A large customer base offers some major advantages like superior sales and more consistent financial performance. In 2018, the global car market share of Volkswagen rose to 12.3%.
International presence : –
Volkswagen has a large international business empire that spans 153 countries. The Volkswagen Group operates 122 production plants in 20 European countries and 11 more countries in the Americas, Asia and Africa.
Weakened Image : –
Brand image is an important strength in the automobile business. VW’s brand image was hurt by the recent Diesel scandal. The company has been able to manage the issue successfully to a large extent in the following years. However, the effect was still severe on its financial performance and business operations. Excluding the heavy financial loss it incurred, the brand was forced to make strategic changes across entire operations to strengthen its image.
Product Recalls :
A high number of product recalls can lead to loss of credibility and brand image. Volkswagen made around 662,000 recalls in 2019 July. The company had discovered the problem in early 2019. Again towards the end of July, the company announced recall of around 27,800 cars and SUVs.
High Operational Costs :-
Growth in the prices of raw material, labor and other things is causing an increase in operating expenses. Year by year, the operating expenses of Volkswagen have kept growing. Total cost of sales of VW in 2018 were €189.5 billion Euros compared to €186 billion Euros in 2017.
AI and Emerging Technologies : –
The emerging technologies including AI, digital technoilogy and autonomous driving have brought new opportunities for the automobile brands. VW is working to transform its core business portfolio. One of its central focuses is developing self-driving system for autonomous vehicles and artificial intelligence. Investing in AI and other emerging technologies will also help the brand grow its competitive advantage.
Marketing and Customer Engagement : –
Digital technology has brought excellent marketing and customer engagement opportunities for automobile brands. Using the technology to form stronger relationships with customers will help create a stronger image and retain more customers.
Social media, blogs and company websites can be great channels for customer and employee engagement. VW is using some of them. However, it must use both content and video marketing in plenty to attract and engage customers on various issues including environment, sustainability and electric mobility.
The company can grow through partnerships. It has several strategic partnerships in place already. Its partnership with Microsoft has helped it grow fast into a mobility service provider. The company has also entered several more strategic partnerships to grow its business empire in Europe, China and U.S. Sinotruck is a strategic partner of VW group in China. Partnering with the technology companies in the field of research and development is also helping VW achieve faster growth. The company is looking forward to entering more such strategic partnerships in regional markets to achieve revenue growth and market expansion.
Regulatory Pressure :-
Regulatory pressure in the automobile industry has kept growing over the past several years. Companies are under more pressure than ever due to higher regulation. Taxes and tariffs are also affecting the bottom line. The diesel scandal gave a severe blow to its cash flow. Regulatory pressures are adding to the compliance costs. The company lost around €25 billion in the diesel emissions case. International expansion is also being difficult due to higher regulatory pressure.
Intense Competition :-
The automotive industry has seen growth in demand over the recent years. This has led to higher sales but competition is also more intense now. There are many competitors of Volkswagen Group in the international automobile industry. Several of these are major international players. VW spends a lot on research and development and management of its international operations to retain its competitive edge. Competition also adds to the operating expenses and each player invests enormous sums in marketing and innovation.
Currency Fluctuations :-
Currency exchange rate fluctuations and changes in the economic environment of the regional markets can have a negative effect on the profitability of VW. In 2018, currency fluctuations had a negative impact on the profits of several of its brands including Skoda in 2018. Skoda’s operating profits fell by 14.6% in 2018 compared to the previous year. This was caused partly by fluctuation in currency exchange rates among other factors like growing personnel expenses.
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