Volkswagen: Business Analysis, Emission Scandal, and Future Strategy

This report provides a comprehensive analysis of Volkswagen, starting with its historical background and evolution as a leading car manufacturer. It delves into the infamous emission scandal, detailing the use of 'defeat devices' to cheat on emission tests and the resulting decline in sales, financial losses, and damage to the company's reputation. The report examines the impact of the scandal on Volkswagen's market share, operating margins, and share price, comparing its performance with competitors like Toyota. Furthermore, it explores the company's strategic responses to the crisis, including cost-cutting measures, investment adjustments, and the implementation of a five-point plan by the new CEO, Matthias Mueller. The report highlights Volkswagen's shift towards qualitative aspects, new energy vehicles, and plugin hybrid electric vehicles, offering insights into the company's transition and future direction. The analysis also references relevant sources and data points to provide a complete understanding of the business challenges and strategic adaptations undertaken by Volkswagen in response to the emission scandal.

RUNNING HEAD: BUSINESS MANAGEMENT
BUSINESS MANAGEMENT

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Volkswagen is one of the leading car manufacturing company in Europe. It was
established in the year 1937 by Ferdinand Porsche. Volkswagen is called as “people’s car” in
Germany (Rodriguez, 2014). Beetle is considered to be the most favorite and most known car
when it comes to Volkswagen. In Early times, Volkswagen was manufactured as low-cost
conveyance facilities to public. The German Labor wanted to manufacture an automobile that
carries two adults and three kids at a time and can travel around 65mph and that would cost
not more than from a motor-vehicle. Further many other car manufacturing companies also
tried to manufacture cheap and reasonably priced automobile but none of the competing
companies could be able to manufacture a reasonably priced vehicle for the working humans.
During the period 1930s, Adolf Hitler gave currency to State-owned factory so that people
could afford and buy motor-vehicles at a reasonable price. In 1939, the first exemplar called
as KdF-Wagens began its testing and then about 30 Volkswagen KdF-Wagens were
manufactured before the conversion of factory for the manufacture of military automobiles to
assist the German Military (Rodriguez, 2014). Many of the people in the plant were fighting
in WWII and then the slave labor was used by the plant to manufacture automobiles.
In the year 1945, Joined forces took the plant in Wolfsburg and the major Ivan Hirst
was then decided to save the factory. From then, Volkswagen Beetles were manufactured by
German Postal Service. There was lack of tranportation facilities which was faced by Britih
Government and then they decided to give an order of 20000 vehicles for manufacture.
Around 50000 vehicles were manufactured and around 15% vehicles were sold in Europian
market in 1949. In 1949 only, under the power of British Military and ordinance 202,
Volkswagen was handed to GmbH. During that period, around more than 10000 employees
were employed and they manufactured around more than 4000 vehicles per month. In 1950s,
the sale of Volkswagen was started to rise.

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In year 2015, the sales of Volkswagen were declining to a great extent and have a
very low operating margins in US and the situation got worse every day when the news of
emission scandal was in hype. In this emission scandal, software was equipped in the vehicles
that were used to cheat on the emission test. The software was equipped in the vehicles
having sensors that reduces the emissions. This was mainly done to save fuel and to improve
the car acceleration. The software was modified to adjust valves or converters to recycle the
gasses in order to reduce the emissions of nitrogen oxide that causes emphysema, bronchitis
and other respiratory diseases (GATES, EWING, RUSSELL, & WATKINS, 2017).
In 2014, the Volkswagen was performing well around more than 10 million vehicles
were delivered to customers. But during 2015, the sales volume has declined in china of
around 2% due to worse economic conditions of the nation. Volkswagen’s failure to increase
the demands for SUV’s and Crossovers which has cost the market share of the company in
every market (Trefis team, 2016). Volkswagen had admitted the scandal and was in guilt by
fixing the emissions test on 11 million automobiles globally which has cost to the company
Billions in fines, expenses and most importantly future loss in sales volume. The share price
of the company was drop down by 33% which included 40% declination due to emission
scandal. After the investigation of the scandal, only 36000 cars were manufactured in a year.
The company had decided to go back to find out the grass roots level of such scandal.
Operations was already in questions before the investigation of the scandal. There were
approximately 600000 employees and had around 119 factories including 12 brands ranging
from luxury vehicles to commercial vehicles around the world (Trefis team, 2016). On the
other hand, Toyota employs approximately half but delivered more automobiles around the
world. Toyota’s operating ratio was 11% whereas Volkswagen has 6% operating ratio.
Many fixes were required to be done which includes substantial declination in
investments in plant, property, equipments, investment properties and many intangible assets

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apart from development costs. Thus with these substantial declination will help the company
in saving of approximatley 13 billion dollars that helped the company in brought up after the
scandal. Further, the Volkswagen group is cutting investment by $ 1.08 billion for its brand
name which contributed approximatley 60% of the net volumes which declines the group’s
net profits (Trefis Team, 2016).
New CEO of the Volkswagen Group named ‘Matthias Mueller’ has came up to deal
with the long-term problems with five-point plan that would help in calibrate the company.
This program includes the major things which were related to the emission scandal such as
support from customers, substantial changes in the company. The strategy names changes
from 2018 to 2025 and the informations to be included in the strategy were added after few
months. The company wants to change its strategy towards qualitative aspects but not
towards quantitative aspects. Further new energy vehicles are also in perspective towards
development. More emphasis is towards manufacturing plugin hybrid electric vehicles. These
hybrid electric vehicles have a radius of around 186 miles and effective fuel system.
Thus, Volkwagen is now in transition. This company has known for spending a large
amount of mony in reaseach and development to cut back to retrieve from the ramifications
of the scandal. The revenues has increased to 8.5% during first 9 months but the amount
which have kept aside to deal with the scandal has left the company with the net loss in the
last 15 years. Further, the EPA and California Air Resources Board both have mutually
rejected the offer of 2-liter diesel cars in the U.S. affected by the defeat device (Trefis Team,
2016). The chinese markets and the US markets were already in struggle because of dropping
in sales volume by 3.4% and it was hard to increase the sales volume after the scandal.

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REFERENCES
GATES, G., EWING, J., RUSSELL, K., & WATKINS, D. (2017, March 16). How
Volkswagen’s ‘Defeat Devices’ Worked. Retrieved from https://www.nytimes.com:
https://www.nytimes.com/interactive/2015/business/international/vw-diesel-
emissions-scandal-explained.html?_r=0.
Rodriguez, K. (2014, January 6). A BRIEF HISTORY OF VOLKSWAGEN. Retrieved from
http://www.hillsideimports.com: http://www.hillsideimports.com/vw-history/brief-
history-volkswagen.
Trefis Team. (2016, January 13). The Year That Was: Volkswagen. Retrieved from
https://www.forbes.com:
https://www.forbes.com/sites/greatspeculations/2016/01/13/the-year-that-was-
volkswagen-2/#ce2d18d245a9.