VW Column reinforces the mantra – it’s all about the product

I read a column today by John McElroy over at Autoblog. The column was about Volkswagen, a company that defies most modern business-school logic and yet remains the most profitable car company in the world.

Some of the numbers from the article:

  • Volkswagen employs a staggering 550,000 people. GM, Ford and Fiat/Chrysler combined employ 574,000 people.
  • Volkswagen market 12 different vehicle brands – VW, Audi, Seat, Skoda, Bentley, Lamborghini, Ducati, Porsche, Bugatti, MAN, Scania, and VW Commercial.
  • Volkswagen’s revenue is $200 billion (with a B) more than their nearest automotive rival and they made $14 billion in profits last year.

As if that weren’t enough, the really interesting part about Volkswagen’s operations is that they are much more vertical than modern business schools would recommend. Yes there are common VW vehicle platforms shared from brand to brand, but they still have the freedom to add their own touches, presumably after making a business case for doing so. Each of those brands has its own board and runs as if they’re a smaller company rather than part of a massive conglomerate.

The results? A bunch of cars that are mostly well defined (Seat is still struggling for a real identity) and obviously, quite profitable.

The car business has always been, and always will be, about the product. You can have all the fancy marketing you like but if you don’t have the product, the market will find you out eventually.

Volkswagen’s modern range might be Das Boring for many of us, but they hit the mark for many others with their VW branded vehicles and the rest of the group’s range occupy solid places in their respective market segments.

Audi has been the emerging golden child of the luxury class for the last 20 years and is now on equal footing with its German rivals. Skoda has built a reputation for surprising value and good build quality. Lamborghini and Porsche are outstanding entrants in their respective classes.

Volkswagen aim to be the world’s biggest carmaker by 2018 and one gets the feeling they’re well on their way.

Why?

Because it’s all about the product. Even if you vertically integrate and have massive staff numbers and costs, the product will carry that load. Fantastic product that fulfils its brand promise and offers great perceived value will beat a weaker entry with a slick marketing campaign – every time.

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13 Comments

  1. That is probably because economical theories tend to forget that human beings are psychological beasts, not rational machines. It is about the spirit. And a proud Skoda worker (yes, they do have a long tradition of high tech, which at one point even included nuclear power plants) will be more productive than a GM slave. And most Bentley drivers turned out to be attached to the nice people at Crewe, not to that shiny former Rolls Royce brand, as BMW had to find out the hard way.

    Opel was a well respected _company_ throughout Europe (including Vauxhall) that manufactured cars on par with VW, and some even better and more premium (e.g. Opel Senator). Since GM tightened their control, and made Opel yet another GM division, Opel has lost its spirit, its reputation, and finally, its customers. And no yet-another-round of layoffs, cost cutting or whatever is going to change that.

    The next company that will have to learn this lesson apparently is Fiat.

    1. I agree 100%.

      It is worrying to see Opel go through something very similar to what happened to Saab, just slower and on a grander scale.
      The preferred solution seems to be; More micromanaging, more layoffs and less product. Has GM really no clue?

  2. VW probably going to do well as long as they can find new markets to conquer. When that is done, they may as well fail as many other huge companies has done before them. And that is largely because I don’t see them focus and innovate. And the more the car seems to be just another appliance, the more you have to focus and innovate to get the buyers interest.

    The auto industry will never be what it was, because the new generations don’t seem to think about cars the way we used to. In Sweden you can have your drivers license when you are 18. It may “only” be 25 years since I got my license, but back then that was the priority the months before turning 18. The 10% in my class that didn’t care about one were considered really weird. And with the license in hand, the goal was a cool car. Did I really need the car? No, probably not despite living in a small town with few options of public transport. But a license and a car was the first thing to get when becoming an “adult”.

    In the Stockholm region today, 60% of people age 18-24 don’t even have a drivers license. People without a license won’t buy a car. The rest of Europe has of course way bigger metropolitan areas than Sweden, and from what I understand the trend is about the same. A car is not a priority for the younger generation anymore. When that behavior has spread enough in the world even VW will run into problems – unless they focus and innovate.

    At the moment, I only see two car companies in Europe that seems to understand the situation: BMW and Renault.

    1. ctm, you’re forgetting that the world population has grown by almost 2 billion people in 25 years and the number of people who can afford a modern car must have doubled.
      I see no stopping to VW’s success if they service the different demographics of customers the way they do now. We must also remember they use crazy amounts of money daily on marketing that hits home very, very well.
      If Saab would have had the product range and marketing of Audi, Trollhättan had been churning out 190.000 cars every year since forever.

      1. That they can afford one doesn’t mean they will buy one. And just because the population grow (as an example) in Africa, doesn’t mean the infrastructure of roads are there to support people having their own car. Since last year, more than half of the world population lives in cities. The problem of owning and using a car there becomes bigger and bigger the more people that moves to those cities. Even (on a world-scale) a relative small city like Stockholm it is a mess with congestion, road-tolls, lack of parking spaces, etc. Instead, young people use mass transportation. And as I indicated, some potential of growth could very well be nullified by young people (even in the “rich” western world) not interested in even getting a drivers license.

        1. I agree with ctm. The latest evidence in the UK seems to suggest that the car market has reached a plateau after growing continuously up to the 1990s.

          But you never know how things will go in future. Ultra-economical and environmentally friendly cars could keep things going in Europe. On the other hand there are plenty of city centres that would be transformed infinitely for the better with no cars allowed and strict controls on commercial traffic. Think of how fast the buses and taxis would be, let alone the cycle lanes.

          Anyway, I wonder what proportion of product VW sells in emerging markets?

          Personally, even though I have had a geeky interest in cars since I was a kid, I was happy walking, bussing and train-travelling until my work made getting a car necessary. My car is for long-distance driving out of town and often to the back of beyond. So I thought, if I am going to get a car, make it a bloody good car that is a pleasure to drive.

          Ergo I bought a Saab…

          1. … car also useful for ferrying children – but that is only because public transport is so compromised by the sheer volume of traffic in the city and there are not enough buses at peak times.

          1. Interesting stats. The jump between 2009 and 2010 is astonishing.

            Just to clarify, when I said the evidence was of a plateau in terms of number of cars on the road – that referred specifically to the UK. It was part of a feature on Radio 4 in the UK a couple of days ago. Obviously sales worldwide are going up and up because of emerging markets.

            Is there a similar site for car *sales* per country?

    2. Would support your observations. My older daughter did her driving licence at 18, but it was no urgent desire. A lot of others in her age are the same. Cars have lost their cool.

      That is more of a problem to the automotive industry than it now appears. Yes, young people will buy cars, but the money is in the styling and distinguishing features, and if cars are no longer a field of expressing personal style, those add ons (a strong engine also being considered as an add on) will be sold less, and the profit per car will be lower.

      1. The young these days don’t need to go physically see their friends like in my day: they just continuously text/twitter/Facebook/Skype them instead.

        No need for a car.

  3. What is the mood like in Australia since the dj tricked the nurse into thinking the dj was the Queen calling about Kate’s condition?

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