Volkswagen's Adoption Strategies & EV Acceptance

 ABSTRACT

The automobile industry since its existence, has seen massive transformations across all segments. From the inclusion of assembly line by Ford to the creation of self-driven cars, technology has pushed the boundaries of development in all aspects. However, one thing that the industry has realized in the last couple of years is that it has been left behind in the electric car race, and is set to spend up to $90 billion, according to Reuters, to catch up. Ford has announced an $11 billion investment to include 16 fully electric models and 24 plug-in hybrids as part of its range within five years, with the first arriving in 2020.

Bill Ford’s efforts are a reaction to Mary Barra’s moves at GM, which last October unveiled two electric models as part of an initiative that will lead to 20 fully electric models before 2023, running on batteries and hydrogen fuel cells.

A few days ago GM announced a completely autonomous model without pedals or steering wheel.

Nevertheless, the car companies are still talking up their ambitious visions and the need to reconquer the streets, but have set no deadlines, effectively reducing their claims to the level of science fiction. Even the automotive industry’s leading players are trying to give the impression that they are abreast of the latest technology – even Ferrari aims to launch an electric model in a bid to show it can match Tesla.

With such advancements taking place in the incarnation of an alternative fuel technology and the hence rise of rise of electric cars, it becomes highly necessary for companies to bring their innovative ideas to the plate and serve customer demands.

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Volkswagen has been a household name in the automobile segment, since its inception as a “people’s car” in 1937 by the Hitler ruled Nazi Government. This paper briefly discusses upon the changing market trends of the automobile industry and how Volkswagen has been able to drift itself smoothly along the years to be where it is currently, with twelve luxury automobile brands under its name and a global presence. The paper also tries to determine the important factors that affect a customer’s automobile buying decisions and analyses them to calculate the effect of the electric vehicle concept ad developed by Volkswagen.

 INTRODUCTION

Germany is considered to be the birthplace of the automobile industry, as motor-car pioneers Karl Benz and Nikolaus Otto independently developed the four-stroke internal combustion engines in the late 1870s. Karl Benz fit his design to a coach in 1887, which led to the modern-day motor car. By 1901, Germany was producing about 900 cars a year, and today, its automotive industry is one of the largest employers in the country, with a labor force of over 820,500 (2018) working in the industry. The German automobile industry is regarded as the most competitive and innovative in the world, has the highest automobile production across Europe (5.5 million) and also generates 20% of total domestic industry revenue generated by automotive industry. The collapse of the global economy during the Great Depression in the early 1930s plunged Germany’s auto industry into a severe crisis. While eighty-six auto companies had existed in Germany during the 1920s, barely twelve survived the depression, including Daimler-Benz, Opel and Ford’s factory in Cologne. In addition, four of the country’s major car manufacturers — Horch, Dampf Kraft Wagen (DKW), Wanderer and Audi — formed a joint venture known as the Auto Union in 1932, which was to play a leading role in Germany’s comeback from the depression

. In the early 1930s, the German auto industry was still largely composed of luxury models, and the average German could rarely afford anything more than a motorcycle. As a result, only one German out of 50 owned a car. Seeking a potential new market, some car makers began independent ‘people’s car’ projects – the Mercedes 170H, Adler AutoBahn, Steyr 55, and Hanomag 1.3L, among others. But the fortunes for the German motor industry turned in the mid 1930s following the election of the Nazi Party to power. The Nazis instituted a policy known as “Motorisierung” -(‘motorization’), a transport policy which Adolf Hitler himself considered a key element of attempts to legitimize the Nazi government by raising the people’s standard of living. In addition to development and extensions of major highway schemes (which saw the completion of the first Autobahn in 1935), the “Volkswagen” project was also conceived to design and construct a robust but inexpensive ‘people’s car’, the product of which was the Volkswagen Beetle, launched in 1937.

Hitler’s pet project was the development and mass production of an affordable yet still speedy vehicle that could sell for less than 1,000 Reich marks (about $140 at the time). To provide the design for this “people’s car,” Hitler then called in the Austrian automotive engineer Ferdinand Porsche. The VW group has overcome all the thick and thins of the automobile industry since the past 80 years of existence and has been able to establish itself as a major household commercial car brand across the globe. The following parts of the paper briefly discusses the journey of Volkswagen as a “people’s car” in 1934 to the “TOGETHER – Strategy 2025” future program, developed by the Volkswagen Group. It is paving the way for the biggest change process in its history: the realignment of one of the best carmakers to become a globally leading provider of sustainable mobility. To achieve that, the Group will be transforming its automotive core business, and will among other things be launching further 30-plus fully electric cars by 2025, as well as expanding battery technology and autonomous driving as new core competences.

Throughout the course of the paper, we discuss upon the strategies implemented by the VW group to withstand the market trends over the years and conduct a market study to understand its brand effect on the implementation of its newly implemented Strategy 2025 of electric vehicles. As one of the major parameters of Strategy 2025 deals with the production of electric vehicles, we also conduct a market acceptance comparison with one of its major competitors, Tesla. The paper accompanies three surveys collected over a group of 50 people to analyze the parameters that persuade a customer’s automobile buying decisions and determine the effect of Volkswagen concept ad upon a customer’s purchasing factors. One of the motives of the paper also lies in determining the likeliness of purchasing a Volkswagen electric vehicle as compared to Tesla’s electric vehicle.

THE AUTOMOBILE INDUSTRY AND VOLKSWAGEN

The idea of a people’s car has inspired many engineers to search for new technical concepts. In 1925, the 18-year old technology student Béla Barényi designed a chassis for a people’s car. His design featured rear-wheel drive, a boxer engine and air cooling, all elements later characteristic of the Beetle. However, it was Tin Lizzy who transformed the automobile in the USA from a luxury item into an everyday article. Ford Model-T was the first people’s car and more than 15 million units were produced between 1908 and 1927. On the other hand, German car makers attempt to build a “people’s car” in the 1930s – an inexpensive vehicle with low running costs and low fuel consumption met with numerous challenges. The small cars produced in Germany during this period never acquired the status of a people’s car due to unfavorable conditions such as high vehicle taxes and insufficient per capita income. During the launch of the first Volkswagen in 1939 at the Berlin motor show, the Fuhrer declared: “It is for the broad masses that this car has been built. Its purpose is to answer their transportation needs, and it is intended to give them joy.”

Adolf Hitler also announced that the vehicle to be built in the Volkswagenwerk will be called “KdF-Wagen” (“Strength through Joy”). Soon after it was displayed for the first time at the Berlin Motor Show in 1939, World War II began, and Volkswagen halted production. After the war ended, with the factory in ruins, the Allies would make Volkswagen the focus of their attempts to resuscitate the German auto industry. A new city (known as Wolfsburg from 1945) was developed around the factory to house its huge workforce. The first VW Beetle rolled off the production line in Wolfsburg. Until production was halted in 2002, the Beetle was the world’s biggest selling car. Today, the Group comprises twelve brands from seven European countries: Volkswagen Passenger Cars, Audi, SEAT, ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania and MAN. In addition, the Volkswagen Group offers a wide range of financial services, including dealer and customer financing, leasing, banking and insurance activities, and fleet management. In the war’s aftermath, a devastated Germany was divided into four sectors.

Those under British, French and American control would combine to form West Germany, while the region under Soviet control became East Germany. In April 1945, KdF-Stadt and its heavily bombed factory were captured by the Americans, and subsequently handed over to the British, within whose occupation zone the town and factory fell. KdF-stat which was in relatively good shape for having been a target of Allied bombs, then under the control of the British military, began turning out Beetles again in December 1945. The Corps of Royal Electrical and Mechanical Engineers (REME) had a relationship with Volkswagen which began in 1945 with a REME detachment using the factory to repair captured enemy vehicles and later to overhaul Jeep and other British Army vehicle engines.

The company owes its post-war existence largely to one man, wartime British Army officer Major Ivan Hirst who served at REME. Under the terms of the Potsdam Agreement between the USSR, USA and UK, the plant is liable for dismantling as part of war reparations because it had been used for military production, but British officer Major Ivan Hirst persuades his commanders of the potential of the car. The factories were placed under the control of Hirst, by then a civilian Military Governor with the occupying forces. Hirst repainted and demonstrated a factory’s wartime ‘KdF-Wagen’ car that had been taken to the factory for repairs and abandoned there, to British Army headquarters. Short of light transport, in September 1945 the British Army was persuaded to place a vital order for 20,000 cars.

The country was going through a crisis during that time owing to the second world war, and the company faced multiple hurdles owing to the disturbance in financial and social conditions. However, Hirst and his German assistant Heinrich Nordhoff helped re-establishing VW”s production and simultaneously stabilize the social situation. The post-war industrial plans for Germany set out rules that governed which industries Germany was allowed to retain. These rules set German car production at a maximum of 10% of 1936 car production. By 1946, the factory produced 1,000 cars a month—a remarkable feat considering it was still in disrepair.

Growth post REME

The car and its town changed their Second World War-era names to ‘Volkswagen’ and ‘Wolfsburg’ respectively, and production increased. It was still unclear what was to become of the factory. It was offered to representatives from the American, Australian, British, and French motor industries. Famously, all rejected it. Ultimately, Ferdinand Porsche’s design company, which eventually becomes Porsche itself, was paid a licensing fee by VW for use of the Beetle. Over the coming decades, the Porsche and VW companies remain linked via a complex legal framework, and in 1948 the control of Volkswagen was officially passed to German control under manager Heinrich Nordoff, former Opel manager. On June 20th that year, Germany underwent a currency reform that led to the introduction of Deutschmark, establishing a functioning market, opening up import export channels, ending short-supply economy and paving the way for VW’s economic growth. Finally, in October 1948, the official Volkswagen trademark was registered with the German Patent Office in Munich. Volkswagen’s first foreign markets include Switzerland, the Netherlands, Belgium, Luxemburg, Sweden and Denmark. 1,380 vehicles are exported to these countries in 1948.

A total of 19,542 vehicles were produced during 1948, and 4,600 among these vehicles were exported to international markets. VW was slowly capturing the mass production industry and penetrating global markets by the end of 1948. By January 1949, VW had 16 main distributors, 31 wholesalers, 103 dealers and 81 contract service centres that handle sales and service operations in the three western zones of occupied Germany. It was 1949 when VW decided to jump into the luxury car segment by enhancing the elegance and comfort levels of exported models. The superior equipment line costs more than the basic model, had wider choice of colours and a better padding that distinguished it from the standard sedan. Also, on June 30th that year Volkswagen-Finanzierungs-Gesellschaft mbH, a finance company was founded to provide loans to customers in Germany and to dealers.

This measure was set up to encourage the sales of Volkswagen, served as an instrument to compensate for the lack of purchasing power on the domestic market. Between 1949 and 1954, the number of predominantly one-year loans rose from 168 to 14,831 and the financing volume from DM 551,000 to DM 48.7 million. In July 22nd that year, VW entered into the mass production of the Volkswagen Type 15, a four-seater convertible at the Wilhelm Karmann factory in Osnabruck. The vehicle attracted plenty of customers by virtue of its great practicality, and concealed stiffeners on its side panels that neutralized vibrations. By 1980, a total of 330, 281 Beetle convertibles has rolled off the line in Osnabruck. By March 4th, 1950, VW had rolled out 100,000 cars since the end of war, and had jumped into a completely new product segment.

Mass production for the Transporter began on the 8th of March. The model is used for transporting goods and as a minibus, as a fire department vehicle, as a police car, a postal delivery van, and later also as a camper-van. Planned as an “uncompromising van”, the three-quarter tonne vehicle adds a second model series to Volkswagen’s portfolio which, with its 4.6 cubic metre load space, appeals primarily to business users. Because of its many uses, the Type 2 is in great demand in Germany as well as overseas. 8,001 Transporter find their way to customers in 1950, which ranged from delivery van models to minibus versions. In 1950, 27,816 sedans were sold in 17 countries. Five years later the Volkswagenwerk was already selling 147,319 Beetle in 45 countries. Around 30 million DM was invested between 1945 and 1950 lay the foundation for mass production in later years. With 81,979 sedans sold alone in 1950, Type 1 becomes a best seller for VW and represented a 96% growth compared with prior-year production.

The workforce too grew by 46% to 14,966 employees globally. December of 1950 recorder the first successful year of overseas business and amounted to a global sale of 90000 units, including Germany. The Korean War that began in June, led to an increase in international demand for raw materials and lead to a temporary acute coal shortage, causing Volkswagen problems in acquiring body panels. Car production in Wolfsburg has to be shut down for a few days. Aside from short periods in the Summer of 1951, material shortages force the factory into short-time working until March 1952. While the VW Type 2 was gaining popularity even after one year of its launch, VW statistical records at the end of 1951 were highly affected by the Korean war and its aftermath.

During the year 1951, VW sold 1015,301 units globally and also managed to launch its first commercial titled “Volkswagen Geschichten” (“Volkswagen stories”), that completely turned Beetle and Transformer into the starts of the silver screen. Production stabilized at Wolfsburg in 1952 as the annual production grew by 28% to 136,013 vehicles. Technical changes and innovations lead to a continuous improvement in product quality and vehicle safety. In 1952, the Beetle is given a triangular rear quarter window and a new tire size. On Sep 11, VW Canada Ltd was founded in Toronto, Ontario, expanding VW’s reach in sales and customer service network. This step is necessary because the duty free import of British products puts Volkswagen at a disadvantage, making penetration of the Canadian market difficult. A total of 94 Volkswagens were sold by the end of the year in Canada, and 135,951 globally. In January, 1953, VW establishes the non-profit community housing corporation VW-Wohnungsbau-Gemeinnützige Gesellschaft mbH. This aimed to ease the chronic housing shortage experienced by Wolfsburg factory employees, and built 1400 apartments by the end of the year. This step not only helped more.