Volkswagen has Renewed the term of its CEO, and all Eyes are on The Company as it Seeks to do to Toyota what Toyota did to GM by 2018. Can Winterkorn Indeed win his Most Coveted Prize?
2010 was surely one of the most relieving years for many companies who were browbeaten by recessionary winds over the past few years; and the largest German auto major Volkswagen is no exception. In fact, the company made all sorts of noises as the calendar year touched the end. For the less informed, even after the company had sold more than seven million vehicles for the first time in its history in a calendar year, the spotlight was on the term renewal of its CEO Martin Winterkorn. The board wholeheartedly voted in favour of extending Winterkorn’s term for another five years for its own set of reasons. Needless to mention, completing the merger with sports carmaker Porsche will be the second most important agenda of his renewed term. Second, because the first one is to displace Toyota as the world’s #1 auto major by 2018 in profitability and unit sales. Notably, the CEO now has the benefit of job security through 2016 for a term that would have expired by the end of 2011. As he is the architect of Volkswagen’s so-called Strategy 2018, the board feels that it makes a lot of logical sense if he captains the ship to that harbour. But is he indeed good enough to run the course?
Before taking control of the reins at Volkswagen AG in 2007, Winterkorn was the Chairman of the Board of Management of Audi and Porsche Automobile Holding SE. The last few years have been nothing but dynamic for this German engineer. Still, even critics accept that the appointment of the new global design chief (Walter de’Silva) is one of the most important decisions he has taken so far. For the uninitiated, de’Silva had previously overseen design at Audi, where he conceptualised the current R8 sports car and A6 sedan. And considering that Toyota has been dealing with an ageing product line-up, Volkswagen’s bet on design may prove to be a gold mine in the years to come. Even the CEO of Toyota Motor Corporation, Akio Toyoda, recently admitted at the North American International Auto Show in Detroit that the company will now be looking at making its cars look better.
Moving towards its goal to become the world’s largest auto major, Volkswagen will be doubling its capacity in China to three million units a year with two new plants. Moreover, the company will also be opening another plant in Tennessee to increase both sales and margins in North America. Even if Volkswagen is able to overtake Toyota in unit sales, profitability still remains one of the biggest challenges. While Volkswagen has been operating with an average net profit margin of 2.42% over the past five years, against the industry average of 3.46%, Toyota, on the other hand, has a net profit margin of 3.61% that beats the industry average. “Volkswagen is now trying to reduce costs and increase profit by removing many of its premium traits and also by building a US plant. They are doing this to increase volume but it could backfire because many US buyers won’t want to buy a Volkswagen if it doesn’t feel like a more up-scale option compared to Honda or Toyota,” said Karl Brauer, senior analyst, Edmunds. He also adds that it was in fact the drop in perceived quality for the Japanese automakers that has opened up opportunities for Volkswagen. A compromise on that front would not be a very good idea.
Before taking control of the reins at Volkswagen AG in 2007, Winterkorn was the Chairman of the Board of Management of Audi and Porsche Automobile Holding SE. The last few years have been nothing but dynamic for this German engineer. Still, even critics accept that the appointment of the new global design chief (Walter de’Silva) is one of the most important decisions he has taken so far. For the uninitiated, de’Silva had previously overseen design at Audi, where he conceptualised the current R8 sports car and A6 sedan. And considering that Toyota has been dealing with an ageing product line-up, Volkswagen’s bet on design may prove to be a gold mine in the years to come. Even the CEO of Toyota Motor Corporation, Akio Toyoda, recently admitted at the North American International Auto Show in Detroit that the company will now be looking at making its cars look better.
Moving towards its goal to become the world’s largest auto major, Volkswagen will be doubling its capacity in China to three million units a year with two new plants. Moreover, the company will also be opening another plant in Tennessee to increase both sales and margins in North America. Even if Volkswagen is able to overtake Toyota in unit sales, profitability still remains one of the biggest challenges. While Volkswagen has been operating with an average net profit margin of 2.42% over the past five years, against the industry average of 3.46%, Toyota, on the other hand, has a net profit margin of 3.61% that beats the industry average. “Volkswagen is now trying to reduce costs and increase profit by removing many of its premium traits and also by building a US plant. They are doing this to increase volume but it could backfire because many US buyers won’t want to buy a Volkswagen if it doesn’t feel like a more up-scale option compared to Honda or Toyota,” said Karl Brauer, senior analyst, Edmunds. He also adds that it was in fact the drop in perceived quality for the Japanese automakers that has opened up opportunities for Volkswagen. A compromise on that front would not be a very good idea.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
