VW: Case Study Questions

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VW Case Study Questions

• The NAFTA challenge
• Reconfiguration of supply chain strategy
• Become competitive in U.S. market

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Shift in IPE

• How does NAFTA challenge VW to reconfigure their
  global/North American supply network?
• Other factors?

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Key IssuesLocation of Value-creating Activities
and Linkages (flow) between VW Units
U.S.
Germany
??
??
Mexico
??
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NAFTA and VolkswagenCurrent Configuration
U.S.
Germany

• Marketing
• Distribution

• High-end productionb
• Suppliers

Mexico

• Low-end
• productiona
• Some supply

a Jetta, Beetle
b Passat, Sharan, EuroVan, etc.
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NAFTA Key Issues

• Regional content
• Over-reliance on German imports
• Lack of US or Mexico supply network
• Increased competition in Mexico and US
• Instability of Peso
• Labor instability

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Changes in Currency
DM per
Peso per
1991
2000
1991
2000
Peso per DM
1991
2000
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2. Supply Chain Management Location and Flow
of Value

• How should VW relocate and reconfigure its key
  value-adding activities, such as production,
  design, marketing, supply chain, financial
  management, etc.?
• What is your recommended flow for auto
  components, finished vehicles, cash, etc.?

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Location and FlowWhat do YOU recommend?
U.S.
Germany
??
??
Mexico
??
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Location and Flow Strong Dollar vs. Peso and DM
U.S.
Germany
Sales Components
Profit
Mexico

• Lower labor costs
• High component costs
• Lower profits
• Low transfer price

Mfg.
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Location and Flow Strong Dollar vs. Peso and DM
U.S.
Germany
Sales Mfg. Components
Profit
Mexico

• Constant labor costs
• Const. component costs
• Profits depend on P-C margin

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Location and Flow Strong Dollar vs. Peso and DM
U.S.
Germany
Sales
Profit
Mexico
Mfg. Components

• Lower labor costs
• Low component costs
• Highest profits
• Low transfer price

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Location and Flow Weak Dollar vs. Peso and DM
U.S.
Germany
Sales Components
Profit
Mexico

• Medium labor costs
• Low component costs
• Medium profits
• High transfer price

Mfg.
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3. Other Competition-Enhancing Actions

• Can VW compete in the U.S. market from outside
  the U.S.?
• What new strategies should VW develop?

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What other strategies should VW try?

• New models
• Consolidate components platforms
• Marketing
• HR policies
• Other stuff?

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New Products
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Product Evolution
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Missed Opportunities?
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Design and Production Convergence
Beetle
Golf
Jetta

Standard Components and/or Single Platform
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VW Changes

• VW Mexico makes 1.0 bil investment 1990-95
• Piech as new CEO January 1993
• Reversed Hahns growth strategy
• Cut worldwide investment by 1/3 and German
  workforce by 10
• Jose Lopez cutting supply costs
• Reducing VW suppliers from 1,000 to under 100
• VW suppliers shifting production to low wage
  countries (including Mexico)
• Considering US plant if 10-15 growth achieved

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VWs U.S. Marketing Efforts

• Cross-promotion of Irish folk/new age band
  Clannad (1993 music in commercials)
• 45 million U.S. advertising campaign focuses on
  popularity of Golf /Jetta in Europe (1993)
• J.D. Power ranks Golf as best in class (1995)
• Pushes test drive outings vs. rivals cars
  (1995)
• Major focus group effort vs. rivals cars (1995)
• Drivers Wanted campaign signals VWs focus on
  17-30 age group 45 million (1995)
• Duh, Duh Duh 70 mil ad campaign (1997)

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The VW Family

• Audi
• Bentley
• Bugatti
• Rolls-Royce
• Seat
• Skoda
• Volkswagen

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Mexico Policy Efforts

• Mexican government lures German FDI in wake of
  German reunification
• Strike at Puebla, August 1992
• Pact for Stability, Competitiveness and
  Employment limits unions ability to gain wage
  raises to 9.9

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VWs North American SalesNumber of Units