Introduction

Volkswagen Group, also called Volkswagen AG which is the major German automobile
manufacturer, founded by the German government in 1937. Volkswagen AG is the world’s
second largest number automaker in the world after Toyota. According to Statista in 2017,
Volkswagen had a global market share of 7.2% in the global automobile industry behind
leader Toyota (9.2%). Moreover, Group revenue in 2017 was €230.7bn on operating profit of
€17bn as an annual report of 2017. The German automobile group saw a 6.2% increase in
2017 revenue from 2016, which is they thanks to a strong performance in BRIC nations
especially China where it has been doing extremely well for the last 3 to 5 years. In addition,
there are some of the macro factors that will be looked at in this report while internal factors
include the emissions scandal in 2015. The report will be for both SWOT and PESTEL
analysis to determine how Volkswagen can leverage its internal core competences like
engineering, manufacturing, and assembly to position itself better in the future despite
adverse macro influences as well as take advantage of macro opportunities.
1.0 SWOT analysis

1.1 Strength

Volkswagen group experienced a robust turnover performance in 2017, despite the high
compensation and litigation expenses related to the 2015 diesel scandal. The company’s
revenue grew from €217.2bn in 2016 to €230.7bn in 2017 while its profits grew by €2.4bn in
comparison to previous year. The company’s strong finance is a great resource that can help
it innovate and expand in high growth sectors. In 2017, Volkswagen AG increased its car
deliveries globally by 4.3%, a year-on-year increase, achieving a new record of 10,741,455
cars sold. Despite emissions scandal, the Volkswagen Group has remained the biggest car
brand in Europe and has grown its market share ahead of rivals Renault and Ford thanks to
a strong brand built on innovative capabilities, engineering, manufacturing and assembly.

1.2 Weakness

The Volkswagen scandal has created a bad reputation for the company (Zart 2018). The
Volkswagen pollution scandal where 11 million cars were fitted with an emissions cheat
device created a very bad reputation for the company among its customers which has
resulted into a fall in its sales in countries like Germany (The Guardian 2018). Poor
corporate governance and internal culture: VW has been criticized for allowing poor
governance and an unethical corporate culture to thrive, factors that contributed to the worst
scandal in Volkswagen’s corporate history.

1.3 Opportunities

While the increasing demand for vehicle sharing and ride hailing programs represents a
threat for Volkswagen as many analysts expect most people to cut back on car ownership in
the years to come (Silver 2017; Gibbs 2017), VW has decided to shift its auto strategy to
reflect the environmental sustainability of these trends. Volkswagen has announced it will
also launch its own “zero-emission” car-sharing service.
1.4 Threats

In June 2018, US president Trump threatened EU automakers with a 20% tariff on EU made
cars unless the EU removes tariffs it implemented on certain US goods as a response to
Trumps steel tariffs. If the 20% tariff is implemented, it will be a major blow to German
automakers including Volkswagen as they dominate more than 50% of EU auto exports to
the US. Furthermore, The “Road to Zero” initiative is a new UK government policy designed
to end sales of diesel and petrol cars by 2040. If fully implemented, at least 50% of news
cars sold in the UK should be ultra-low emissions. For Volkswagen and other automakers,
the threat is clear; move to electric or perish. A hard Brexit landing is also a major threat as it
will worsen UK demand for cars, impacting consumer spending and demand for new cars
due to potentially harmful economic consequences for automakers

2.0 PESTEL analysis

PESTLE is used in strategy to analyse the macro environment and identify how future trends
in the political, economic, social, technological, environmental and legal environments might
impact individual organisations within an industry. Firms then study the key drivers of change
behind the PESTEL factors. This is only a starting point as often, other frameworks such as
Porters Five Forces and BCG can be used in conjunction, to help Volkswagen utilise internal
core competencies so as to take advantage of opportunities while neutralising threats.

2.1 Political

The biggest current issue arising from Volkswagen’s political environment is the current
political tensions around trade tariffs between the US and the EU. US president Donald
Trump in June 2018 threatened to impose a 20% tariff on all imported cars from the EU,
which would raise tariffs from the current 2.5% tariff duty which has been place since the
1960s. The US imported more than $42bn in automobiles from the EU in 2017, half of which
($20bn) came from Germany. If Trump’s tariffs are imposed, they are most likely to impact
Germany auto companies the most, as it is them that dominate the EU auto imports sector
that Trump wants to impose tariffs on. If successfully implemented, it will become perhaps
the most critical threat to Volkswagen since the emissions scandal. Brexit, pending US tariffs
on EU made cars as well anti-diesel trends and regulations in major markets like the UK,
hence represent some of the major macro environmental threats to VW and the EU auto
industry in general
2.2 Economic

The Volkswagen is the biggest automaker in the European Union with nearly 25% of the
market. The EU is also VWs biggest market in volume sales with more than 4.7million cars
sold in the EU ahead of both North America (1m) and Asia Pacific (4.5m). The biggest
economic issues revolve around the economic impact of political turmoil such as Brexit,
which has already created high inflation and a decline in consumer spending, leading to a
decline in demand for new cars (Bolduc 2017). Brexit-led inflation resulted to increase in car
prices by 5% making it hard for consumers to purchase new cars.

2.3 Social

The social environment includes changes in socio-cultural trends which can include
fluctuations in population demographics, social mobility, income and education, attitudes to
work and leisure or changes in lifestyle (Johnson et al 2008). Some of the biggest trends in
the automobile industry include the ubiquitous use of car sharing platforms such as Uber
especially among millennials whose attitudes are shaping and driving demand for newer
technologies that threaten car ownership. The increasing demand for vehicle sharing and
ride hailing programs represents a threat for VW due to offering more convenience and
cheaper transportation compared to the high cost of car ownership. Some analysts expect
most people to cut back on car ownership in the years to come.

2.4 Technological

The biggest technological trend facing VW is the development of self-driving (autonomous)

cars. These cars are designed with advances in artificial intelligence, terrain sensors,
mapping cameras, radar technology and big data analytics all fitted for easy navigation.
Autonomous driving technology represents one of the biggest technological threats because
it not only challenges how people drive (or driven) but also the very concept of vehicle
ownership. According to a KPMG survey of car. So far, the Autonomous Vehicle space is
becoming a serious battleground with players such as Tesla, Uber already launching plans
to deploy electric self-driving vehicles for commercial use.
2.5 Environmental

The increasing public demand for electric vehicles, car sharing services and the continued
development of self-driving vehicles has created a growth opportunity for Volkswagen and
other car makers who can innovate and dominate this trend. The good thing is VW is very
aware of the environmental sustainability of the shift from car ownership to “mobility as a
service” where preference is towards car sharing (McGee 2018b). This is why Volkswagen
has announced it will also launch its own “zero-emission” car-sharing service.

2.6 Legal

In the wake of the ‘2015 Volkswagen emission Scandal’, a Detroit court in US ruled that
Volkswagen should pay up to $4.3bn in criminal penalties, fines and restitution for their
violation of environmental regulations in connection with the scandal . The scandal involved
VW fitting their diesel cars with sophisticated defeat devices which ensured their diesel cars
would meet emission standards in laboratory settings, but on the road, emissions went
beyond legal limits. As a result, VW was forced to recall or repair over 11million cars
containing the “infamous” devices. This has greatly ruined the reputation of Volkswagen,
leading to a decrease in sales in subsequent years and fines and criminal damages of more
than $25bn in North America alone, excluding the threat of future financial compensation
from civil litigation.

3.0 Michael Porter’s five forces analysis

Porter's Five Forces is a business analysis model that helps to explain why different
industries are able to sustain different levels of profitability. The model was published in
Michael E. Porter's book, "Competitive Strategy: Techniques for Analyzing Industries and
Competitors" in 1980. The model is widely used to analyze the industry structure of a
company as well as its corporate strategy. Porter identified five undeniable forces that play a
part in shaping every market and industry in the world, with some caveats. The forces are
frequently used to measure competition intensity, attractiveness, and profitability of an
industry or market. These forces are threat of competitive rivalry, threat of substitute
products, threat of supplier leverage, threat of buyer’s influence, and threat of new
competition.
3.1 Threat of competitive rivalry

In the automobile industry, the threat of existing competitors of Volkswagen is very high.
There are, many companies which are in the same size competing in this market.
Volkswagen is facing several strong competitors like Toyota, Ford, and General Motors. One
of the biggest competitors of Volkswagen is Toyota Motor corporation which has 12.19%
market share worldwide. It is one of the oldest automotive brands. Volkswagen’s other
competitors is General Motors which has 9.22% market share in the industry. It has 18 brand
in its portfolio on USA and China. It also possesses strong product designing and
development capabilities.

3.2 Threat of substitute products

The traditional substitute products of diesel car is public transportation. The threat from its is
low. Even though it is very convenient to take the public transportation in metropolis, people
still have to rely on the cars in some places which we underdeveloped. As a type of car,
electric can be considered as the substitute product of diesel car. When people know the
electric car can become as fast as diesel car in similar price, they become more and more
willing to choose electric car. One of the reason why people still prefer diesel cars is the
inconvenience of electric car’s charging. As a result, the electric car will gain stronger
competitive advantage compare to the diesel cars.

3.3 Threat of supplier leverage

The threat of supplier leverage is medium of Volkswagen. N the hand, if the supplies have
their own patent like ESP or ABS, their products are unique. For this reason, they have
higher bargain power than other suppliers. The threat of suppliers like that is high. The
manufacturers of steel and aluminium, the manufacturer of auto parts and components is
also the supplier of Volkswagen. The bargain power of the suppliers like this is even lower,
because Volkswagen scale is large and Volkswagen can also produce the auto parts and
components.
3.4 Threat of buyer’s influence

The bargain power of Volkswagen is medium to high. People have high demand for car
which make their bargain power lower. Not only that, they have many other choices, which
can enhances their bargain power. In addition, customers can get more information about
the produce of different companies more conveniently, so they are more willing to choose
their cars carefully.

3.5 Threat of new competition

Not surprisingly, the automobile industry has large barriers preventing new firms from
entering. Thereby, the threat of new competition is low. Firstly, the start-up cost is so high
that people will not start a company in this industry easily. Secondly, it is difficult for the new
entry to achieve the economies of scale. Thirdly, building the distribution channel is also
difficult. Last but not the least, the customers are loyal to their brand, so it will take new entry
a long time to build their brand and get the trust from the customers.

4.0 The distinctive competencies of the Volkswagen Group to gained competitive advantage
in the market place is a huge relationship with related and supporting industries which are
internationally competitive themselves. Volkswagen Group comprises of multiple brands for
example Audi, Porsche, SEAT, MAN, Bugatti, Skoda and more. So, that comes up every
time with wonderful car models exhibiting unique and also numerous features. Furthermore,
the one of the advantage of the Volkswagen Group is the parts are made from German
which manufacturing by the German engineers and they are used to manufacture such
incredible cars with great features. This is the one of the reason behind what makes
Volkswagen exclusive than the others. Moreover, the original parts from Volkswagen is so
incredible. For example, foolproof parts are made by the certified engineers and technicians
which are fitted into Volkswagen vehicles. Not only that, the engineers are promises
seamless performance and long-time warranty. So, it can make a strong trust against
customers. In addition, the luxury features from Volkswagen like lavish cars, if offers the
same features without luxury rates which makes it easy for large number of consumers to
enjoy intriguing experiences. Such as rear camera, supportive seats, excellent interior and
lightning, automatic gear box and more. As a result, this type of distinctive competencies
from Volkswagen Group can make the company number one in market place.
 Conclusion

In conclusion, the Volkswagens Pestel analysis for 2017 and 2018 has mostly revealed a
significant flashpoint of threats facing the company as well as the automotive industry in
general. For instance, the indirect ban of diesel and petrol cars in UK by 2040 is a major
threat that will lead to Volkswagen and other automakers scaling back on production of
petrol and diesel cars in favor of electric cars. Also, the analysis shows a wide range of
issues that VW will have to deal with for example the threat of 20% tariffs on EU car imports
to the US, as well as the rise of vehicle sharing and ride hailing services. While these are
predicted to slow down demand for car ownership, there are opportunities for Volkswagen
and other innovative automaker.