Although Volkswagen had weak performance in the United States market for many years, the company announced its goal of doubling the number of vehicles it sells in the US by 2012 or 2013. VW wants to move from its niche status and become part of the mass market. At the 2010 Detroit Auto Show, Stefan Jacoby, head of Volkswagen of Americas said:
“We will sell 400,000 to 450,000 vehicles in 2012/13.” He added that the U.S. business could be profitable by 2013. A few years before the Detroit Auto Show, Jacoby established the goal of selling 1 million vehicles annually by 2018, with 800,000 sales from the Volkswagen brand, and 200,000 from the Audi brand.
Volkswagen is Europe’s largest automobile manufacturer. VW’s mediocre performance in the U.S. market had been attributed in part to its product line which does not fit well with the American auto preferences. “Volkswagen has neither a premium brand like Mercedes, nor a mass-market brand,” said Marc Tonn, a senior automobile analyst. “The company was kind of stuck in the middle.”
Volkswagen’s ambitious goals were made public in 2008 when CEO Martin Winterkorn
said that he was determined to surpass Toyota to become the world’s biggest automaker. At the time, the German automaker sold 3 million fewer vehicles that Toyota, was losing market share in the U.S., and had a reputation for variable quality. Toyota, then poised to pass General Motors as the best-selling car maker on the planet, appeared invincible.
Toyota became vulnerable in 2010 because of massive recalls about safety features. At that point Winterkorn’s ambitions seemed less preposterous. November 2009 was a milestone for VW, because for the first time the German automaker built more cars than its Japanese rival.
Winterkorn sees a history-making opportunity. Winterkorn contends that by 2018 Volkswagen will pass Toyota. “VW saw a chink in Toyota’s Armor and realized they could act out their ambitions,” says automobile analyst Stephen Pope. “They went for it straightaway.”
Throughout the world, Winterkorn, 62, is pressing the accelerator. VW has agreed to buy a 20 percent stake in Suzuki Motors to capitalize on the rapidly growing markets of South- east Asia and India. Winterkorn is hoping to gain potential sales from BMW and Mercedes, committing $11 billion over the next three years to the development and manufacture of Audi, the luxury brand of Volkswagen.
In terms of doubling U.S. sales, Winterkorn predicts that Volkswagen can entice customers from Toyota, Honda, Ford, and others by selling Americans on German engineering and style at reasonable prices. In 2010, VW introduced a compact sedan priced to compete with cars such as the $16,000 Toyota Corolla. “We have to bring the masses to VW,” says Mark Barnes, VW’s U. S. chief operating officer.
Competing against Toyota won’t be easy despite the company’s embarrassing recalls in
2010. Above all, Volkswagen sells fewer vehicles in the U.S. than Subaru or Kia and has a reputation for making undependable, pricey vehicles. In Southeast Asia where Toyota dominates, the VW brand has very little recognition. The same problem exists in India. Winterkorn’s goal to
double Audi sales in the U. S. by 2018, meanwhile, isn’t troubling BMW. “They have been saying that for years,” says Jim O’Donnell, president of BMW of North America.
In the summer of 2007, Winterkorn and the Volkswagen board met to brainstorm ways to become the world’s largest automaker. A key agenda item was repairing VW’s American problem. That year, VW forecast sales of 200,000 cars in the U.S., a 40 percent drop from 2000. Even worse the sales forecast was a third of what VW sold in 1970 when the Bug and Bus were Hippie favourites. Jacoby says executives at the meeting laid out three choices: They could continue to lose considerable money selling cars that were too small and too expensive, they could surrender, or they could take the offensive. They chose option No. 3.
- What suggestions might you offer Volkswagen for gaining more market share in the United States?
- Which success factors for international commerce does VW appear to be following?
- Which success factors for international commerce does VW appear to need to strengthen?