Volkswagen SWOT Analysis and Case Study
In February of 2016, the international automobile company, Volkswagen, launched an advertising campaign which lead with an apology and strived to regain the trust of the consumer population. Flashback to September 2015, Volkswagen (VW) was under a harsh spotlight after it was revealed that nearly 11 million of their diesel models worldwide were equipped with devices the skewed emissions levels. The scandal caused uproar amongst VW and the more upscale Audi users as millions of vehicles were suddenly recalled. Very quickly after the news broke, VW’s once credible reputation was virtually nonexistent. Economically, this situation had a significant effect on the company stock price and overall sales. The company was forced to sell of their stock, costing them approximately $16.9 billion of their market value.
While it is a bad move to deceive the public in any kind of business, it is especially harmful to mislead consumers into thinking a product/service is safer than it actually is. Diesel is not only harmful to humans, but it emits a large number of dangerous pollutants, such as nitrogen oxide (responsible for contributing to emphysema and bronchitis,) into the environment. These emissions have a negative effect on not only the drivers of these vehicles but also the surrounding community and environment. Obviously, for many diesel motor producers, it is very difficult to eliminate the dangerous factors of diesel emissions. In 2013, the International Council for Clean Air Transportation, developed and proposed an on-road emissions test to be used in the United States. Soon thereafter, the non-profit organization got together on the project in California to try and enforce restrictions on diesel emissions. In 2014, another organization known as the California Air Resources Board (CARB) initiated an investigation into the Volkswagen vehicles. Researchers discovered excessively high levels of nitrogen oxide; they approximated the level to be 40 times higher than the newly implemented U.S. limit. Following this shocking discovery, the Environmental Protection Agency (EPA) and the CARB prohibited VW from selling their 2016 diesel models.
VW initially got away with this sneaky maneuver by putting deceptive software in the cars that allowed them to increase or decrease the data. This software was installed on the Jetta models from 2009-2015, the Beetle models from 2012-2015, the Passat models from 2012-2015, the Golf models from 2010-2015, and the higher end Audi A3s from 2010-2015. Approximately 500,000 vehicles were effected in the U.S. alone.
With nearly 80 years in the automobile market, Volkswagen has grown into a strong, multi-brand company with a diverse selection and a futuristic mindset. The Volkswagen group include 12 different car brands: Volkswagen, Audi, Skoda, Seat, Bentley, Bugatti, and Lamborghini. In addition, they sell a variation of heavy trucks, buses and other commercial vehicles within these brands. In comparison, other competing automotive companies like General Motors and Toyota also have multiple brands within their company. As a company, their goal is to be diverse by offering mobility to the people all over the world. Volkswagen strives to be a company that fits any budget and/or lifestyle, from a leisure vehicle to a reliable commuter vehicle. Volkswagen is responsible for approximately 60% of the vehicles on the road in Germany, while the other 40% of the cars are BMWs. One of Volkswagen’s most promising strengths is its Strategy 2025 initiative. Volkswagen considers Strategy 2025 to be their quintessential rescue plan. This strategy has a vision and a mission. It is about customers, employers, profitability, the role model for environment safety and integrity. It will sustain growth to the company. The strategy includes 16 specific initiatives that Volkswagen plans to enact by 2025 including: improved brand positioning in Europe and China, through customer surveys; new vehicle development for more than 20 SUVs and 30 electric vehicles; implementation of a comprehensive electric system; self-driving capability; increased battery performance; enhanced product differentiation, plans for global strategic investments and new establishment of research and development facilities in Potsdam, San Francisco, and Beijing.
While Volkswagen demonstrates an extensive list of strengths that have kept it afloat in the midst of a scandal, they are strapped with weaknesses as well. Most notably, the Dieselgate scandal of 2015, is credited as being one of the company’s greatest weaknesses. After the company was found guilty for the installation of a false software code into its diesel vehicles, the company had to pay huge penalties for its deception. Another major weakness is vehicle recall. Over the last few years, Volkswagen was forced to recall millions of vehicles worldwide, following the emissions scandal. It was the highest rate in the U.S. where they had to recall each of the involved vehicles, not only once but twice. In August 2017, they reported the estimated recall of 281,000 cars with faulty pumps. The defective fuel pumps were recalled because they caused interruption of electric power to the fuel pump control module. This issue may cause fuel pump to fail, which will cause the engine will stall, increasing the risk of a crash’ and no available parts at the US dealers yet. In terms of the car market as a whole, Volkswagen is behind many of the other companies in the development of electric and self-driven vehicles. Finally, VW has less implementation in US and China market than BMW for example. The sole Asian pacific is 16% VW while BMW sales in China alone is 20.6%. VW plans to reverse the profit margins and technological barriers with Strategy2025.
External threats are an element of business that every company needs to be aware of. In this situation one of the biggest threats was caused internally but has a major external effect. Brand reputation has been hurt badly – One of the major threats to Volkswagen is the hit to the brand reputation due to the emission scandal. More than 5 million cars had to be recalled. After returning their recalled cars, frustrated consumers were not confident about investing in another Volkswagen car again. Volkswagen will have to spend a lot of money to rebuild their brand in an effort to regain their brand strength.
Right now, they are greatly threatened by other cars on the market that have good reputations. Competition is ever increasing. As technology quickly advances, competition reacts similarly. VW is also effected by the different government regulations that exist in their consumer countries. All government systems are expected to be loyal to their own car manufacturers. They make it a priority to keep the profits within the country. But, as the government rules change, car manufacturing must change as well.
In technology, innovation is taking place on a daily basis. Tesla recently came out with their own line of hybrid cars. In addition, the advanced company launched a line of self-driving cars, ahead of all other companies on the market. Competing brands like GM and Toyota are prioritizing innovation as well. But, Volkswagen needs to keep in mind that the world is learning, inventing and changing new things all the time… they must keep up with the trends of technology.
A final threat to the Volkswagen company is that changing emission laws will hurt Volkswagen. This is considered a threat because as the law changes, VW will have to adapt, change and mold their products to fit the new restrictions. This constant change is costly to a company. We can conclude that Volkswagen is willing to compromise their integrity to improve their sales. Going forward, it is safe to assume that the government will be watching VW with a magnifying glass as they work to repair their reputation in an honest and responsible manner.
After a scandal like the one that VW endured, it is easy to get stuck at the bottom of the totem pole. Volkswagen has already put together a plan called Strategy2025 to rebuild and to capitalize on the external opportunities that do exist for them. Some exciting opportunities are that fuel prices are expected to steadily rise over the next few years. Additionally, the company plans to grow and advance their skills to achieve greater results in the future. Volkswagen should also keep in mind that the need for vehicles, especially in the greater United States, is rapidly growing and it is the company’s responsibility to fulfill that need. Volkswagen would also benefit greatly now from striving to exceed expectations all around, especially after they tarnished their good reputation. They are planning to exceed the consumer expectation by releasing their own fleet of autonomous vehicles by 2025.
In conclusion, Volkswagen is an interesting company with a rich history and a bright future. This analysis provided us with greater insight as to how they came to be, what they have struggled with and how they can move forward. With their Strategy2025 plan, they have a realistic set of goals that they plan to achieve by a specific time, that will not only fix their reputation but build a new and improved Volkswagen brand.