Volkswagen Group (Germany)

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Volkswagen Group was already Europe's top-ranking carmaker, but it seized the top spot globally in 2016 ahead of Toyota and GM, two years ahead of target despite the shadow of the diesel emissions scandal which emerged a year earlier. The group was found to have installed sophisticated software in some of its diesel engines to cheat emissions tests, making its vehicles appear more environmentally friendly than was in fact the case. The repercussions of that scandal are wide-ranging and very expensive, but don't appear to have dented the popularity of Volkswagen's cars. The group controls a broad portfolio includes VW itself, Audi, Seat, Skoda, Lamborghini, Bentley and now Porsche. Towards the end of 2009 it agreed to acquire a strategic shareholding in Japanese company Suzuki, but that partnership failed to deliver significant results and was later dismantled. The group has also built a dominant position in trucks through controlling stakes in MAN and Scania. Yet despite its range, Volkswagen has struggled to combat flat performance in its home market and especially in the US, as well as fierce competition in its biggest market, China. Many of those problems have been addressed with an aggressive expansion strategy initially inspired by luxury sports car manufacturer Porsche, which had attempted to engineer an unsuccessful reverse takeover of Volkswagen in 2008. The tables were turned after Porsche suffered the full force of collapsing credit markets, forcing it to concede the upper hand in a merger to Volkswagen. That whole experience awakened a far more dynamic and combative spirit within Volkswagen Group itself. Perhaps a little too dynamic in the light of the diesel emissions scandal.

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The Adbrands Company Profile of Volkswagen summarises the company's history and current operations. Subscribers may access the following website links:

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Brands

Skoda VW Golf
VW Commercial New Beetle
Lamborghini VW Bank Direct
Bugatti Bentley
Seat Gedas
Scania Autostadt

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 14th Jun 2018: Volkswagen received its first penalty in Europe over the Dieselgate emissions-cheating scandal. German regulators fined the group €1bn, one of the largest penalties ever levied in that country. Volkswagen has already paid out around €26bn in fines and compensation to customers, almost entirely so far in the US, but that sum is likely to rise further. An investigation is still underway in Germany for fraud, with several key group executives at risk of large fines or even jail sentences.

Adbrands Weekly Update 10th May 2018: In a dramatic escalation of the investigation into Volkswagen's "Dieselgate" cover-up, the US Justice Department filed charges against former group CEO Martin Winterkorn for conspiracy to commit fraud over vehicle emissions. Volkswagen was found secretly to have installed "cheat devices" on diesel engines which temporarily cut toxic emissions under laboratory conditions. The group has already admitted guilt in the case but placed all the blame on lower-level executives, claiming that senior executives had been unaware of the fraud. Two former managers are already serving multi-year jail sentences. However, the Justice Department says Winterkorn himself knew about the deception more than a year before it was discovered by regulators in August 2015, and endorsed efforts to continue the cover-up.

Adbrands Weekly Update 18th Apr 2018: Volkswagen Group's supervisory board ousted CEO Matthias Mueller, and appointed former VW brand leader Herbert Diess in his place. No reason was given, and the press statement claimed that Mueller's departure was "by mutual agreement". However, according to insiders, Diess has for several months, and without Mueller's knowledge, been proposing a widespread reorganisation of the group. Diess "began pressing shareholders quietly to oust Mr Mueller and put him in charge," said the Wall Street Journal, quoting people familiar with the situation. Newly appointed as CEO, he made that strategy public this week. "In a phase of profound upheaval in the automotive industry, it is vital for Volkswagen to pick up speed," he said, unveiling a reorganisation of the group into five divisions. The biggest will comprise the mainstream brands VW (light trucks and vans as well as passenger cars) alongside Seat and Skoda. Porsche will head a new sports car group alongside Lamborghini, Bugatti and Bentley; while Audi will stand alone as the sole occupant of a premium car group. Heavy trucks under the VW, MAN and Scania brands will be grouped together as Volkswagen Truck & Bus, and the group is considering a partial IPO of that unit for 2019. The fifth division is the group's sizeable financial services business.

Adbrands Weekly Update 12th Apr 2018: Despite stellar performance over the past two years under CEO Matthias Mueller, the supervisory board of Volkswagen Group has replaced him, two years before the end of his contract, with VW brand leader Herbert Diess. Previously head of Porsche, Mueller has led Volkswagen since the Dieselgate emissions cheating scandal broke in 2015, and has shrugged off the expensive repercussions from that scandal to establish the group as the world's biggest auto manufacturer. However, he has done this by implementing a more flexible and future-proof structure, cutting costs, marking certain non-core units for disposal and committing the group to a massive expansion in its electric vehicles programme. Several of these actions, together with his strong and vocal opinions about strategy, are understood to have caused increasing friction with the group's highly conservative and notoriously fractious supervisory board, which is dominated by members of Volkswagen's founding Piech and Porsche families, representatives of the state of Lower Saxony where the group is based and of its main labour union. As one former Volkswagen executive memorably said "Changing the cost structure in [VW headquarters in] Wolfsburg is like walking through the streets of Bogota looking for drug dealers without a weapon. It's suicide." Yet while one set of rumours suggest that Mueller was forced out, others say that Mueller was himself ready to leave, tired of the constant friction with the board but having implemented the strategy he envisaged for the group.

Adbrands Weekly Update 15th Mar 2018: Volkswagen Group announced a mammoth expansion of its electric vehicles programme, with the goal of overtaking Tesla to become world leader in that technology. It announced plans for at least 16 new electric vehicle factories by 2022, with nine of those plants in operation within the next two years. CEO Matthias Mueller said the group would launch a new electric vehicle "virtually every month" in 2019. Across the group's brand portfolio it will introduce 50 new all-electric models and 30 new hybrids, and has set a target of selling 3m electric vehicles by 2025. By 2030, electric versions will be available for its entire range of more than 300 models. "This is how we intend to offer the largest fleet of electric vehicles in the world, across all brands and regions, in just a few years," Mueller said.

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Background

Free for all users | see full profile for current activities: Volkswagen's growth over the last 50 years is an impressive achievement, although a shadow still falls over the company's early history because of its pre-war links to the Nazi Party. In 1934 engineer Ferdinand Porsche (father of the founder of the sportscar marque) persuaded Germany's new Chancellor Adolf Hitler to underwrite his vision of producing a car for the masses. Most other German auto manufacturers, such as Daimler-Benz, targeted only wealthy buyers, but the idea of a "volkswagen" (literally, "people's car") fitted perfectly with the Nazi ideal as well as the development of the new autobahns. Hitler liked the designs for the car and commissioned the building of the Volkswagen factory in Wolfsburg in 1937 with the aim of turning out a million cars a year. In fact, although the first Volkswagen car was manufactured in 1938, the outbreak of war prevented full production and instead the factory was turned over to the German war machine, with labour provided by 10,000 concentration camp prisoners. The plant was later destroyed by Allied bombing raids.

After the war, the demand from Germany's newly impoverished population for a low cost car was greater than ever before. British occupation forces oversaw the rebuilding of the Volkswagen factory, as well as the launch of series production of the original no-frills Volkswagen model, which soon earned the nickname of the "Beetle" because of its unusual shape. In 1949, ownership of the company was transferred to Germany's newly created federal government, with management of the business overseen by the local council of the state of Lower Saxony. Sales of the Beetle were strong and steady, and during the 1950s Volkswagen also launched the VW Transporter or Microbus, the original people carrier. The company also took its first tentative steps abroad, with factories in Canada (1952), Brazil (1953), South Africa (1956) and Australia (1957). Volkswagen went public in 1960, and bought Audi from Daimler-Benz in 1965. At the same time, sales of the Beetle rocketed in America, supported by an iconic campaign from New York agency Doyle Dane Bernbach. As a complete opposite to traditional American cars in both appearance and features, the Beetle was quickly adopted by the country's counter-culture movement, and by 1972, the Beetle had become the best-selling car ever made.

Despite its success, however, the Beetle had changed little since its launch in 1945 and VW began to cease production during the 1970s. The last German Beetle was produced in 1978, after sales of 20m cars in total. (Small numbers of Beetle cars continued to be produced in Mexico until 2003). Instead the company launched the first models of the Passat (1973) and Golf (1974) and embarked on an ambitious global expansion strategy, reinforcing a long-held belief in developing emerging markets. In 1982, the company was the first Western auto manufacturer set up a full production facility in China, as a joint venture with local company Shanghai Tractor & Automobile Corporation. Also that year it assigned a license for local production of Volkswagen models in Spain to local manufacturer Seat. Four years later it acquired a 75% shareholding in Seat, and in 1987 took control of Ford's local operation in Argentina to form Autolatina. In 1990, it took up the remaining stake in Seat and spent £3.8bn buying and modernizing Czech manufacturer Skoda. In 1991, VW inked a deal with Toyota licensing the Japanese carmaker to distribute VW and Audi cars in Japan through its Duo subsidiary.

In 1998, the group flexed its corporate muscle again, tussling with BMW to capture the iconic Rolls Royce marque, put up for sale by British company Vickers. However, the negotiations ended in some embarrassment for VW. Although the company outbid BMW for the Rolls-Royce-Bentley manufacturing business with an agreed deal of £480m, it was denied ownership of the Rolls Royce name and logo. These reverted to their original owner, engine manufacturer Rolls-Royce plc, which then sold the license to BMW for £40m. As a result VW was allowed to make Rolls Royce cars under license until the end of 2002, when the brand transferred to BMW. The same year, VW spent £30m on the luxury Italian sports car manufacturer Lamborghini and classic brand Bugatti. The company also unveiled the new Beetle, a remodelled - and more expensive - update of its much-missed classic.

In an ironic twist to this rivalry with BMW, a year later VW recruited ousted BMW chairman Bernd Pischetsrieder, initially as head of a newly created quality assurance division. The group moved into the heavy trucks sector in 2000, acquiring a controlling stake in Sweden's Scania. The German company paid Investor, the company which owned 49% of Scania, nearly SKr14bn ($1.6bn) for 34% of its voting shares and almost 19% of its capital. (Scania was to have merged with arch-rival Volvo earlier in 2000, but the latter's bid was blocked by the EC). Also that year, the group relaunched the famous Bugatti brand, establishing a new manufacturing facility in France to develop a hyper-luxury sportscar capable of reaching 248 mph.

Pischetrieder eventually became group chairman in 2002. He launched a restructuring of the group's rather dated and conservative structure, and also divided the group's portfolio into two main operating divisions under the VW and Audi brands respectively. In 2004 VW was obliged to issue a product recall of more than 870,000 VW Passat, Audi A6 and Audi A8 cars worldwide as a result of problems with front axles. In 2005, several senior executives left the group in the wake of a bribery and fraud scandal, in which it was alleged that the company had paid for luxury trips and prostitutes for members of Volkswagen's works council in order to influence decisions and avoid industrial action. Two VW managers were also reported to have requested bribes from suppliers. Peter Hartz, the board member responsible for human resources, resigned in July 2005, and subsequently admitted his role in the affair, which was conducted apparently without the knowledge of other board members. There was further turmoil in November 2006, when Bernd Pischetrieder resigned as CEO as a result of a long-running dispute with group chairman Ferdinand Piech over strategy and VW's increasingly close relationship with Porsche.

The two companies had maintained close links for most of the second half of the 20th century, not least because the Porsche family had negotiated exclusive rights to distribute Volkswagen vehicles in Austria and other markets. More recently, the two companies had worked together on the design of Porsche's Cayenne SUV, for which VW makes the outer bodyshell, and had a joint venture to develop petrol-electric hybrid technology. Several members of the family also secretly harboured the desire to reunite the two businesses. In September 2005, Porsche announced plans to acquire up to 20% of Volkswagen for around €3.3bn. That plan initially met with considerable opposition from minority non-family shareholders in Porsche as well as several board members of VW, led by the state premier of Lower Saxony, who challenged the dual role of Ferdinand Piech, chairman of Volkswagen's supervisory board but also a prominent member of the Porsche family. Nevertheless, VW was able to push through the deal, and Porsche had accumulated an 18.5% voting stake by mid-October.

This created a major new source of friction with Lower Saxony, where VW is headquartered. The biggest obstacle in the way of cost control at Volkswagen had for many years been the unusual nature of its ownership structure. The so-called "Volkswagen Law", passed by Germany's regional government in the 1950s, prohibited any individual shareholder from owning more than the 20% of Volkswagen's voting rights held by the local state government. Although this prevented any possibility of takeover by a foreign company, it also effectively blocked VW from transferring jobs out of Saxony to lower-cost markets in eastern Europe and Asia.

In 2006, Porsche renewed calls for the VW Law to be scrapped. Eventually, in February 2007, Lower Saxony gave in on condition that it retained a veto on major structural changes. This left the way clear for Porsche to increase its holding to just under 30%. A month later, Porsche issued a largely symbolic bid for the entire group. Under German law, 30% is the barrier beyond which buyers must make a formal bid for 100% of a target company's equity. Porsche's offer was well below the larger group's share price, and few minority shareholders accepted that deal. Nevertheless it allowed Porsche to continue adding to its VW stake without needing to increase its overall bid.

By September 2008, Porsche's shareholding had risen to 35%, and was expected to reach 50% by the end of the year. As financial markets began to fall as a result of the growing economic downturn, many institutional investors anticipated that Volkswagen's share price would also drop as Porsche slowly increased its stake, and hedged their portfolios accordingly. Instead the smaller company mounted a secret raid on the larger group's shares, suddenly announcing at the end of October 2008 that it had acquired an effective 74% holding through a complex series of derivative options. This created a panic among hedge funds holding short positions on VW shares, causing the price to soar dramatically. In the ensuing mayhem, several large investors were ruined. To appease regulators, Porsche was forced to relinquish some of its own options, settling for a 51% shareholding in January 2009.

In the meantime, there was an growing rift between VW chairman Ferdinand Piech and his cousin Wolfgang Porsche, chairman of Porsche. At its heart was the comparatively simple question of which of the two men would be the senior partner in a combination of the two companies. Porsche saw his own business as the effective parent, while Piech believed the much larger Volkswagen Group should prevail. This friction had reached unworkable levels by the end of 2008, with Piech apparently refusing to have any dealings with Porsche Group's CEO Wendelin Wiedeking, the architect of that group's creeping takeover of Volkswagen.

By early 2009, the friction had begun to threaten any resulting group's future stability. At the same time, however, the burden of debt incurred by Porsche had also begun to create problems for the smaller company. A truce was called in May 2009, in which the two groups agreed to merge as a single company, with terms of the precise structure to be decided by a committee which includes representatives from Lower Saxony and the VW workers' unions. After several months of further argument, Volkswagen succeeded in turning the tables on its cousin, and instead agreed to acquire management control of the sports car company for €3.3bn. See full profile for current activities


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