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  • Published on: 7th September 2019
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Volkswagen AG, through its network of subsidiaries, is engaged in all aspects of the automobile manufacturing industry. It involves twelve distinct brands from seven European countries: Volkswagen Passenger Cars, Audi, Bentley, SEAT, Skoda, Bugatti, Lamborghini, Porsche, Ducati, Scania, and MAN (Volkswagen Commercial Vehicles). Each brand has its character and operates as an independent entity. The output spectrum differs from motorcycles to cheap-consumption small cars and extravagance vehicles. In the commercial vehicle sector, the products range from pick-up trucks, buses, and heavy trucks. The company also manufactures large-bore diesel engines for marine and stationary applications, including turnkey power plants; turbochargers; turbomachinery, such as vapor and gasoline turbines; compressors; and petrochemical reactors. It also provides car transmissions, special gear parts for slide bearings, wind couplings, and turbines, as well as examination systems for the mobility area.

 Volkswagen AG offers a broad range of financial services, including dealer and customer financing, leasing, banking and insurance activities, and fleet management. The company has operations in many European countries, as well as the Americas, Asia, and Africa.

The government of Germany (then under the control of Adolf Hitler of the National Socialist Party) creates a new state-owned automobile company in 1937, after which acknowledged as \"Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH.\" After one year later, in 1938, it was renamed Volkswagenwerk, or “The People’s Car Company.”. To provide the design for this “people’s car,” Hitler called in the Austrian automotive engineer Ferdinand Porsche (the founder). In 1938, at a Nazi rally, the Fuhrer announced: “It is for the large volumes that this car has been built. Its mission is to satisfy their transportation demands, and it is intended to give them joy.” In 1960, during the flotation of the German government\'s stake in the company on the German stock market, the company\'s name became Volkswagenwerk Aktiengesellschaft, usually abbreviated to Volkswagenwerk AG.

Matthias Müller is a German businessman who has been the chief executive officer (CEO) of Volkswagen AG since 25 September 2015 (after the scandal). He had been the chief executive officer of its subsidiary, Porsche, since 2010 and has been Member of the director\'s board of Porsche Automobile Holding SE since 2010.

Volkswagen AG is the biggest automaker in the world with the number of 10,312,400. Volkswagen has passed Toyota to convert the world\'s best-selling carmaker, the first time the German company has held the position. Also, Volkswagen generated 217.3 billion EURO revenues in the fiscal year 2016 (Jan-Dec), with 5.114 billion EURO OF net income.

Mission & Vision

Volkswagen as a Company does not have an approved mission statement. The most solid statement that could be called VW Group’s mission is declared as company’s goal: “The Group’s goal is to offer charming, reliable and environmentally sound vehicles which can battle in an increasingly tough market and establish world standards in their corresponding class.”

Instead of having a mission and vision statement, the company usually keen to reveal its strategies for future programs. In 2016, Volkswagen AG declared a new strategy, which is called TOGETHER - Strategy 2025. Its overarching vision is to become a world-leading provider of sustainable mobility.

External Analysis

Opportunities

In the industry, with the “Green Movement,” the demand for fuel-efficient vehicles is increased. The company could find increased possibilities in the area of fuel efficient vehicles, which emphasize exceptional technologies such as hybrids, pure diesel engines, flexible-fuel ethanol vehicles and a turbocharged direct injection system. The market of alternative vehicles would account for 40% of the total Light Duty Vehicles (LDV) sales by 2035 is indicated by Energy Information Administration (US Government). Moreover, the inorganic growth strategies would boost company, Volkswagen Group focuses on pursuing strategic acquisitions that add to the overall expansion of the business. In July 2015, the company, through MAN Diesel & Turbo SE (MDT), acquired 100% stake in India-based MaxWatt Turbines Pvt. Ltd. (MAX), which specializes in engineering, production, and service of steam turbines for applications in power generation and mechanical drives. Through this acquisition, the company intends to strengthen its position in Indian power generation market.

The company entered into various strategic contracts and agreements and new launches which enable the company to enhance its operations and diversify its revenue streams. In 2015, the company launched the third generation of Touran under the Volkswagen Passenger Cars brand. In January 2016, Volkswagen entered into a strategic partnership with Mobileye to manage the digital transformation of the automotive industry and develop intelligent surroundings monitoring technologies. In September 2015, the company its engine plant in Russia with a production capacity of 150,000 units per year. The Kaluga plant manufactures most modern engines for the Volkswagen brand and the SKODA models. With the opening of the new facility, Volkswagen has become the first foreign automaker with its engine production facility in Russia.

Threads

In Europe, emissions are monitored by two different organizations, the European Commission and the United Nations Economic Commission for Europe. The EC requires adapted emission control specifications on vehicles marketed in all European Union (EU) the Member States and other nations implement laws under the framework of the UN-ECE. The EU Member States can give tax incentives to automobile manufacturers for vehicles which meet emission standards earlier than the compliance date. EC and UN ECE specifications are equal regarding stringency and implementation. A distinct level of exhaust emission standards for cars and light-duty trucks, Euro 6 standards, was started in 2014. The new European emission measures concentrate especially on diminishing emissions from diesel vehicles. The new specifications will expect supplementary technologies and further increase the cost of diesel motors, which currently require more than gasoline engines. The US federal government emission control requirements on vehicles sold involve pre-production testing of vehicles, testing of vehicles later assemblage, the command of emission defect and performance guarantees and the responsibility to recall and fix vehicles that do not comply with emissions specifications. Moreover, Volkswagen faces intense competition from various players in its different segments of operations. Most of its competitors are big multinational companies which have significant dominant positions in their respective markets and if the company is unable to compete effectively, its revenues, operating results and financial conditions will be adversely affected and may limit its ability to grow its business. The company faces stiff competition in both passenger and commercial markets from companies such as Honda Motor Co., Ford Motor Company, Daimler AG, PSA Peugeot Citroen, Bayerische Motoren erke Aktiengesellschaft, and Toyota Motor Corporation. If the company is not able to maintain the product quality and consumer loyalty, this intense competition could reduce its sales volume, and thereby hamper its market position.

The increasing prices of raw materials could affect the company’s business. The major raw elements used steel and iron moldings, forgings, composite wheels, batteries, fuel injection systems, electrification systems, electronic information systems and others. It also uses internal systems such as plastic finishers, glass and consumables, and fuels. Also, its production plants rely mostly on electrical power, natural gas, and other energy sources. There has been a notable increase in concocted steel and metal costs. Hence escalating input costs could have the main influence on the operational expenses of the organization, that can not be simply transferred to the buyers as the strong competition could lure away its customers through their low price expiations. As a result, the margins of the organization could be modified

Internal Analysis

Strengths

The Volkswagen AG is the largest global automotive manufacturer in the world having significant market presence. Leadership in the industry helps to mitigate geographical risks. According to industry estimates, World car market grew 4.8% during the fiscal year ended December 2016 while Volkswagen reported growth of 5.2%. The company sells its products across four geographies, namely, Europe/Other markets, North America, South America and Asia Pacific. It reported sales of 10,311 million vehicles in 2016. The company sold 4.5 million vehicles in Europe/Other markets, 0.94 million vehicles in North America, 0.74 million vehicles in South America, and 4 million vehicles in Asia Pacific. Moreover, Development of efficient drive technologies for environmentally friendly mobility is in line with an offer of CO2-neutral mobility. Increasingly strict exhaust and emissions standards and CO2-dependent vehicle taxation continue to drive downsizing and zero emissions. Reduction in powertrain sizes while retaining performance features and e-mobility operations with plug-in hybrids and purely electric drives are expected to improve environmental footprint. Technologies such as BlueMotion technologies for reducing consumption and emissions; the Blue TDI and TSI EcoFuel drivetrains for reducing fuel consumption and CO2 emissions are to be adopted by brands including the Volkswagen Passenger Cars, SKODA, and SEAT.

Volkswagen follows a multi-brand strategy, which gives it an edge over its competitors while attracting and retaining a loyal customer base. It offers passenger cars, light commercial vehicles, trucks, buses, and power engineering to global markets. Company operations include development, production, and sale of vehicles and vehicle parts. Its multibrand strategy includes a range of vehicles that covers almost all segments from subcompact cars to heavy trucks. It offers major brands which include SEAT, Bentley, Scania, MAN, Volkswagen, Audi, Skoda, Bugatti, Volkswagen Commercial and Lamborghini. The Audi and Skoda labels maintain a leading status in the core European markets. The company manufactures luxury cars, convertibles, and SUVs under the Audi brand. The A4, A6, A3, Audi Q7, A5, Audi Q5, A8, GT Cabriolet, Cabriolet, A6 Allroad Quattro and R8 models are offered under the Audi brand. The company produces hatchback models, sedans, luxury sedans and compact SUVs under the Skoda brand. Octavia, Fabia, Roomster, Yeti, Rapid, and Superb are the models offered by the company under the Skoda brand. Under the SEAT brand, it offers passenger cars, which include models such as the Ibiza, the Leon, Altea/Toledo, Alhambra, Exeo, and Mii. Under the Bentley brand, the company offers various luxury sedans, and expensive cars under different models including company’s brand models include Continental GT Coupe, Continental GT Convertible, Flying Spur and Mulsanne.

Weaknesses

Product recollects not only harm the brand perception of the product or brand in the marketplace but also influences the expense structure of the company mainly in turn affecting the revenue stream of the enterprise. In April 2016, the company recalled more than 3,800 Vento sedans in India, as their carbon monoxide (CO) emission exceeded the limits according to a test carried out by Automotive Research Association of India (ARAI). Earlier in December 2015, the company recorded a decline in deliveries in FY2015. This category of passenger vehicles recorded a 4.8% decline in deliveries amounting to 5.8 million in 2015. The decline was mainly due to the market situation in Brazil, Russia, and China. Besides, the company also recorded a decrease in vehicles sales and revenue contribution from South America and Asia-Pacific. Vehicle sales in South America declined from 794,000 to 540,000, and in Asia-Pacific, it declined from 4,114,000 to 4,005,000. Besides, sales revenue from South America and Asia Pacific regions registered also decline of 26.8% and 7.6% respectively.

Volkswagen reported a decline in its net working capital in FY2014. Declining net working capital could affect the company’s ability to finance its short-term debt obligations. It reported current assets of EUR145,387 million in 2015, as compared to current assets of EUR131,102 million, showing an increase of 10.9% over that in 2014. Its current liabilities stood at EUR148,489 million in 2014, as compared to EUR130,706 million, indicating an increase of 13.6% over that in 2014. The company\'s current ratio was 0.9 in 2015, as compared to 1.0 in 2014. It also recorded lower quick ratio of 0.74 and 0.28 in 2014, compared to 0.78 and 0.32 in 2013 respectively. A low current ratio indicates that the company is in a moderate financial position

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