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 TEAM MEMBERS

AYUSHI RASTOGI 19PGDM-BHU017

BIDISHA MITRA 19PGDM-BHU018
BITAN CHAKRABORTY 19PGDM-BHU019
CHAYAN SEN 19PGDM-BHU020
DEEPAK DHANUKA 19PGDM-BHU021
DEVAM JAIN 19PGDM-BHU022
DIKSHA LATH 19PGDM-BHU023
DIKSHA PRASAD 19PGDM-BHU024
 BACKGROUND OF
VOLKSWAGEN
● Founded in 1937 under Nazi regime by labour unions
with the help of Ferdinand Porsche - inventor of Beetle.

● VW Beetle was introduced in 1945 and sold 1 million

Beetles worldwide by 1955 and surpassed Ford’s Model T
in terms of sales by reaching 15 million sales by 1972.

● By late 1970s, VW branched out to models including,

Passat, Jetta, Golf & Polo due to declining sales.

● By 2014, Volkswagen AG owned 12 subsidiaries.

● CEO from 2007-2015 Oct was Martin Winterkorn who
was preceded by Mathias Muller after the VW scandal
came into light.
VOLKSWAGEN AG BRAND PORTFOLIO
 CORPORATE STRUCTURE

● The shareholders of VW consisted of:

○ Descendants of Porsche (50% Ownership)
○ Lower Saxony (20% Ownership) - State in which VW was headquartered
○ Qatar’s Sovereign Wealth Fund (17% Ownership)
○ Independent Shareholders (10% Ownership)

● Instead of having board of directors, VW had a 20 member supervisory responsible

for corporate governance as per German corporate law.
○ 10 seats were allocated to VWs labor force
○ 10 seats were divided among shareholders

● As of 2015, one seat was held by an outsider (Annika Falkengren - CEO of a Swedish
Bank) and the remaining were as follows:
○ Porsche & Piech Families - 5 Seats
○ Lower Saxony - 2 Seats
○ Qatar - 2 Seats
 VALUES & STRATEGIES PRIOR TO THE
SCANDAL
Company’s stated values:

○ Customer Focus Superior Performance ○ Creating Value

Renewability

Sustainability Responsibility Respect

 VALUES & STRATEGIES PRIOR TO THE SCANDAL

● A 25 page code of conduct was written in 2009 which addressed topics like management culture &
collaboration, anti-corruption and fair competition.

● This code of conduct was a guidepost for employees that combined basic principles of VW activities and
supported its employees in legal and ethical challenges.

● In 1950s, VW introduced the “Think Small” campaign which gave emphasis to Beetle.

● In recent years, VW stressed on “The Power of German Engineering” advertisements which was a motto for
them, a way of doing business and a national pride.

● The dominance in automobile engineering helped Germany during the 2008 global financial crisis as well.
 ● Martin Winterkorn took over as CEO in 2007, while his mentor
Ferdinand Piech was Chairman.
● Both CEO and Chairman had engineering backgrounds, and
kept close eye on product development.
● Tightly controlled and highly centralized company.
● Culture of command and control, aggressive goals, and high
VW involvement of senior executives even in relatively minor
decisions.
Leadership ● Company reputation for being hard-charging and brutally
competitive.
● Environment where subordinates were fearful of admitting
failure or contradicting superiors.
● Relentless pursuit of goals.
STRATEGY 2018

● Goal to become world’s largest automaker.

● Strategy focused on positioning the company as a global and environmental leader.

● Four primary goals of ‘Strategy 2018’:

○ To sell 10 million+ vehicles per year by 2018.
○ To become the world leader in customer satisfaction and quality.
○ To achieve an 8% return on sales.
○ To be the most attractive employer in automotive industry.

● Needed to sell 1 million vehicles annually in US, but had reputation for selling expensive and
undesirable cars.

● Performance, mileage and emissions were needed to be balanced.

 AMBITIOUS GOALS AND REGULATIONS

● In mid 2000s, during Winterkorns tenure as CEO, the auto industry was facing significant
engineering challenges.

● High prices of gas pumps and mileage standards lead to designing of more fuel efficient
cars and at the same time increasing emission regulations.

● The market for hybrid electric cars was growing rapidly. But instead of competing VW
opted for diesel strategy considering it as a opportunity within US car market and a
viable eco friendly alternative.

● Diesel was cheap and offered high performance with fuel efficiency.

● Roadblock: Diesel cars generated more NOx than gasoline powered engines, which was
against the American emission standards.
 AMBITIOUS GOALS AND REGULATIONS

● In 2005, Wolfgang Bernhard, head of designing, adopted a technology, a Daimler invention called
BlueTec which used a substance called urea(cat urine) to neutralize NOx. The deal was cancelled due
to high cost and other issues.

● The launch of new car Jetta was delayed because VW engineers had to find a new way to meet
stringent US emission standards without sacrificing the mileage.

● The operations of the electric cars that were coming up were controlled and guided through
software coding which helped to monitor the amount of pollutants- carbon monoxide and NOx,
diverting them to systems that converted them into less harmful substances.

● During the struggle period, auto industry supplier Bosch gave VW a diesel engine management
software for use.

● The software could detect emission and activate the emission controlling devices. Bosch sold the
software to VW for internal testing only.
 CLEAN DIESEL SALES TAKE OFF

● By 2008 the power of German engineering was on its peak.

● VW announced clean diesel technology called “The Lean NOx Trap” which delivered high fuel
efficiency meeting the emission standards
● In 2009 clean diesel Jetta TDI won Green car of the year award and hosted multi week
“Dicsclution tour” to change any “outdated perceptions about diesel technology”
● Clean diesel became the centerpiece of VW’s marketing strategy, raising the sales.
● The sales grew by 20% in 2010, 26% in 2011 and 25% in 2012
● VW diesel cars accounted for 21% of company’s US sales
● In 2011 vision of selling 1 million vehicles was coming true. Companies like
Toyota and Honda were struggling under economic crisis and bailouts

● By 2012 VW claimed 3% market share in US which was higher than the previous
years

● By 2014 VW was on the verge of achieving all 4 strategy 2018 goals

● Worldwide sales of VW grew at 7.2% CAGR from 2007 to 2014. Thus becoming
world’s largest automaker .

● By 2013 the market share in US fell because the taste has shifted towards
midsize SUV
● In 2011 EPA officials in Obama administration announced to
increase fleet wide fuel efficiency .Thus helping companies to
earn credits

● By utilizing ground breaking technology that improved the

environmental effects of VW’s fleets such as hybrid and electric
cars

● Credits could be used to lower the emissions rating of

manufacturer above the EPA limits but credits were not offered
to diesel manufacturers

● Giving rise to lobbying

● Thus VW was unable to meet the EPA’s new standards and had
no credit earning hybrid cars like competitors.
 UNFOLDING OF SCANDAL

Blame on few
engineers and
denial by senior
Defeat devices management.
VW flatly denied of installed in Resignation of
any accusation of 500,000 diesel CEO Martin
wrongdoing. vehicles across Winterkorn after
The discovery of 14 models sold in 5 days of the
EPA limit- 0.07, scandal becoming
2015 Jetta in-lab unusual set of the U.S. since
instructions public.
The observation by
testing- 0.07, on- 2009.
road testing- 2045 through in-depth
International Council examination by
on Clean i.e. 35 times higher
Transportation, in than the legal limit. researchers.
2013.
 FALLOUT

• Fines up to USD18 billion- USD37,500 per car for each of the estimated 500,000
cars impacted.
• Criminal investigation against VW across in the U.S. and across Europe.
• In October, VW reported its first quarterly loss in 15 years.
• Matthias Muller, formerly the Porsche brand chief, was appointed the VW’s new
CEO.
• The relationship between the loyal owners and the brand was hampered.
• The independent VW dealers were also crippled by the sudden drop in sales.
• VW led the auto-industry, accounted for 20% of German exports and 3% of
German GDP.
• Germany was steeling for potential job losses.
• In June 2016, VW agreed to a $14.7 billion settlement in the emission scandal.
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