INTRODUCTION

Literally, the word "Volkswagen" means "people's car." As a carmaker, they are under an obligation to their customers and society to supply high-quality products that are safe and environmentally compatible. The Volkswagen Group with its headquarter in Wolfsburg is one of the world’s leading automobile manufacturers and the largest car producer in Europe. The "Volkswagen Group" consists of some of the biggest names in the Automobile Industry. The Group consists of eight brands: Volkswagen, Audi, Bentley, Bugatti, Lamborghini, SEAT, Skoda and Volkswagen Commercial Vehicles. Each brand has its own character and operates as an independent entity on the market. The product range extends from low-consumption small cars to luxury class vehicles. The Volkswagen Group's models are sold in more than 150 countries.

Group Values Customer Nearness

Top Performance

Added Value

Renewabilty

Respect

Responsibility

Sustainability

The Board of Management of Volkswagen AG comprises five members. Each Board Member is responsible for one or more functions within the Volkswagen Group. Prof. Dr. Martin Winterkorn is the Chairman. The work of the Board of Management of Volkswagen AG is supported by the boards of the brands and regions as well as by the other group business units and holdings. The Supervisory Board is responsible for monitoring the Management and approving important corporate decisions. Moreover, it appoints the Members of the Board of Management. The Supervisory Board of Volkswagen AG comprises 20 members and conforms to the German Co-determination Act. Dr. Ferdinand K. Piëch is the Chairman of the Supervisory Board of Volkswagen AG.

The aim of the Group is to offer attractive, safe, environmentally friendly vehicles which are competitive on increasingly tough markets and represent the global benchmark in their respective classes.

A BRIEF JOURNEY THROUGH A LONG HISTORY

When in 1937 the company known as "Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH" was founded, no one could have guessed that it would one day be Europe's largest carmaker. The history of the company - with all its trials and tribulations - is first and foremost a story of impressive success. It is this very company that today we come to know as “VOLKSWAGEN”.

1937-1945On May 28th, 1937 the "Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH" company was founded, and on September 16th, 1938 it was renamed "Volkswagenwerk GmbH". In early 1938, in what is today Wolfsburg, work begans on construction of the Volkswagenwerk plant which was to house production of the new vehicle designed by Ferdinand Porsche.

1945-1949After the end of the Second World War, in mid June 1945, responsibility for Volkswagenwerk was placed in the hands of the British Military Government. Under the management of Major Ivan Hirst, mass production of the Volkswagen Beetle was started.

1949-1960On March 8th, 1950 the Type 2 went into production, expanding the company's product range. The Volkswagen Bus, till today known to many as the "VW Bully", soon created rising demand thanks to its multifunctional capabilities. In 1956 a separate manufacturing base for the transporters was established in Hanover, at the same time setting down the roots of today's Volkswagen Commercial Vehicles brand.

1960-1980On February 17th, 1972 Volkswagen broke the world car production record: with 15,007,034 units assembled, the Beetle surpassed the legendary mark achieved by the Ford Motor Company's Model T, popularly known as the "Tin Lizzy", between 1908 and 1927.

In 1973 the Passat became the first model of the new generation of Volkswagen vehicles to go into production. The Passat was built in line with the modular strategy, by which standardized components usable in a range of different models provide significant rationalization.

1980-1990In June 1983 production of the second-generation Golf began. The car was designed for a largely automated assembly process, and in the specially erected final assembly hall, designated Hall 54, robots were deployed for the first time in vehicle manufacture.

1990-2000

With the production launch of the Lupo 3l TDI, the first production car came to offer fuel consumption of just three liters per 100kilometers, in July 1999, Volkswagen once again made automotive history.

2000-2003In August 2002, at Volkswagen Slovakia, as in Bratislava, mass production of the Touareg, a luxury-class off-road vehicle, was started, marking the Volkswagen brand's move into an entirely new market segment.

In December 2002 the "Auto 5000 GmbH" company, operating a plant at the Group's site in Wolfsburg, started production of the Touran compact van. A special collective pay model had been developed, aimed at implementing lean production and involving flat hierarchies, team working, flexible working hours and the deployment of more process expertise by the workforce.

2003 production of the fifth-generation Golf was started, embodying a new dynamism in its design and engineering.

DESCRIPTION OF FIRM

Volkswagen’s Products and Positioning

Size, Growth Rates, and Main Products

In 2006, Volkswagen sold 5,192,576 vehicles worldwide, and sales in 2006 amounted to 5,192,576 million Euro. Volkswagen is headquartered in Germany, and the European Community (EC) represents by far the largest market for Volkswagens, with sales to EC countries comprising nearly 60% of Volkswagen’s global sales. Sales in Germany (27%) and Brazil (14%) account for the most significant segments of Volkswagen’s total sales. The U.S., Mexico, and Canada are, respectively, the seventh, thirteenth, and eighteenth largest markets for Volkswagen vehicles, with North Americans purchasing around 6% of all Volkswagens sold.

Last year, the firm's global advertising budget was $1.1 billion, with non-U.S. advertising at $933 million. This contrasts heavily with the global balance of advertising outlays for many automobile firms. For example, Toyota has an advertising budget of $1.7 billion, with non-U.S. spending of $989 million. Volkswagen’s proportionally smaller marketing focus within the U.S. serves to illustrate the relative unimportance of the U.S. to Volkswagen from a global perspective.

However, the importance of North American markets has been increasing. The automaker predicts total sales of 250,000 in 2008 in the U.S., and envisions a steady double-digit growth pattern in Canada and U.S. in the coming years. NAFTA will almost certainly act as a catalyzing factor in this growth.

Volkswagen products sold in North America include the Passat, the Jetta, the Golf, the old Beetle (only in Mexico) and the new Beetle. The Jetta is Volkswagen's best seller in the United States.

PROBLEMS FACED BY VOLKSWAGEN

Implementation of the North American Free Trade Agreement (NAFTA).(See annexure 1) has had a dramatic impact on the automobile industry in North America. The provisions of the NAFTA have led to significant changes in the nature of automobile production and purchasing within Canada, the United States, and Mexico.

IMPACT OF NAFTA ON VOLKSWAGEN

The Threat of Competition

Possibly the largest challenge facing Volkswagen as a result of the NAFTA is the reality of increased competition in Mexico from North American competitors—namely General Motors, Ford, Chrysler, and Nissan. For the first eight years of the NAFTA (until 2002), firms that do not assemble cars in Mexico were prevented from importing, leaving these five firms to battle for market share in Mexico.

In 1991, Volkswagen's share of the Mexican market stood at 38%, with Volkswagen holding a strong lead over its competitors. However, NAFTA appears to have had an immediate impact by 1995, when Mexico was in the throes of currency devaluation, Volkswagen had fallen to fourth, behind General Motors, Ford, and Nissan.

Volkswagen's market share has recovered somewhat since, amounting to 23.1% in 1997, second only to General Motors at 26.7%. However, competition in Mexico from firms that prior to NAFTA had not placed much emphasis on the Mexican market remains a significant threat to the success of Volkswagen in North America.

Domestic Content Requirements

Another challenge confronting Volkswagen deals with the issue of parts sourcing. Presently, only automobiles that meet a standard of 56% North American content under the NAFTA rules of origin may be shipped duty free, and this standard will be increased in another four years to a permanent level of 62.5%. Although Volkswagen did not have a great deal of trouble meeting the initial standard of 50% North American content (largely because it already faced a 36% Mexican content requirement prior to NAFTA), complying with the higher 56 and 62.5% standards has and will continue to affect the firm. This requirement has forced Volkswagen to adjust its sourcing practices, causing it to rely more heavily on parts suppliers within the U.S. and Canada, rather than on the German sources that have historically supplied the largest portion of parts to the Puebla plant. If Volkswagen is unable to meet the stronger domestic content requirements, then it will face the significant competitive disadvantage of having to pay a 2.5% duty on exports to the U.S.

Labour Issues

The impact of NAFTA provisions pertaining to labour was particularly bad, these measures had an impact on Volkswagen’s operations in Mexico. The Puebla plant had already experienced its share of labour difficulties, suffering through a major strike that crippled production for a time in 1993. Despite the NAFTA Labour Commission’s lack of direct authority, public pressure brought to bear within Mexico in turn influenced the Mexican government and Volkswagen’s standards for the treatment of workers.

North American Opportunities

While it was facing the difficulties presented by the NAFTA, Volkswagen also confronted opportunities for increased exports of its vehicles from Mexico to the U.S. and Canada. The elimination of tariffs under NAFTA did allow Volkswagen to increase its exports to the U.S. and Canada. And in fact exports did increased since NAFTA was implemented. It is difficult to say, however, how much of this increase was due to NAFTA, and how much was due simply to the peso crisis and to the strength of the U.S. and Canadian economies.

It can also be argued that NAFTA has played a role in Volkswagen’s recent decision to locate a new plant in North America. While there are many factors involved in where to locate a new plant and the non-existence of tariffs make Mexico or certain parts of the U.S. look more appealing as potential sites. It is not possible to say that this plant would not have been proposed if it weren’t for NAFTA, but the fact remains that NAFTA gave the U.S. and Mexico an additional edge in the search for possible plant locations.

 

VOLKSWAGEN STRATEGY

Fluctuating Market Presence in North America

In the 1960s, Volkswagen captured the North American market for the small, inexpensive automobile with the original Beetle, and soon established a Beetle assembly plant in Westmorland, Pennsylvania. However, with the rise of Japanese and other Asian manufacturers in the entry-level market during the 1970s and 1980s, Volkswagen saw its market share in North America fall precipitously. Also facing more stringent environmental and safety standards in the US and Canada in 1986 Volkswagen decided to cease all assembly operations in the U.S. and Canada and rely entirely on imports to service the market. Not facing the same constraints in Mexico, production of the Beetle continued at the Puebla plant.

Emphasis on Europe

From the mid-1980s Volkswagen's global strategy hinged on

(1) continued growth in production and demand for the Beetle in emerging markets (especially Latin America) and

(2) a concentration on the European market as the motor of growth in innovative product lines. Indeed, the European market dominates Volkswagen's global sales. Not only has Volkswagen emerged as a leader in Europe, but in the post-Soviet era, Volkswagen has made considerable inroads in expanding production and sales throughout Eastern Europe, partly through its acquisition of Skoda

Renewed North American Focus

During the 1980s and 1990s growth in VW's European market share required that VW rely on Mexican capacity to meet demand in North America. This renewed emphasis on Mexican production was also fuelled by a recognition of VW's price sensitivity in the U.S. market due to the depreciation in the dollar. (At current exchange rates, Mexican production is cost-competitive with production in Germany.) However, the most important aspect of Volkswagen's new strategy centers on the need for a strong presence in North America in the contest over global automobile markets. Part of this presence will take the form of imports from Europe (like the new Golf), but increased production in North America is also essential. Accordingly, Volkswagen has raised its level of production in North America by 34% in the past two years.

The establishment of a new assembly plant North America will be the most significant aspect of Volkswagen strategy in North America for some time to come. Building this facility will allow Volkswagen to take full advantage of North American free trade and to expand its market presence in North America.

Parts Sourcing

Volkswagen has historically relied on a system of global sourcing to supply parts to its assembly plants. In Mexico this has changed, however, as a direct result of the domestic content requirements of NAFTA. The purchase of parts form within North

America, and particularly from the U.S. has expanded in order to meet the requirements of the NAFTA. Continuing to develop a network of North American parts suppliers will remain an integral part of Volkswagen’s North American strategy, especially in light of the proposal to locate a new assembly plant in North America.

Production Techniques

Volkswagen has kept up with industry wide trends towards increased use of new organizational orientations and methods of "just in time" production. Volkswagen has focused resources on its labour training programs, seeking to facilitate the rotation of work functions amongst employees. This development has allowed increased flexibility in the production of vehicles by ensuring that qualified personnel are available to accomplish a variety of tasks within their respective production segments. Volkswagen has also focused on reducing inventories through the use of "just in time" production, which has led to the creation of much closer ties between parts suppliers and assembly plants.

The New Beetle

A good sense of the Volkswagen's new marketing strategy can be derived from the high-profile launch of the new Beetle in 1998. Seeking to stage a "convincing comeback based on the needs and wants of U.S. customers", and unlike the entry-level Beetle of the 1960's, the 1999 Beetle is a modern car that is marketed to more affluent consumers whose preferences can be swayed on the basis of both performance and nostalgia. This is reflected in the new Beetle's sticker price of $15,700 U.S. for the base model, which is priced above the Golf but below the Jetta.

Fostering an Upscale Image

While the arrival of the new Beetle promises to bring increases in sales of Volkswagens, the firm is emphasizing its desire to continue to improve sales of its upscale vehicles, like the Passat and the new W-12 sports car (Germany). Maintaining this focus on developing an image as a car maker that is a rival to BMW and Mercedes is particularly important in the U.S., where expanding into the upscale market will carry with it substantial long-term gains. Accordingly, Volkswagen plans to ensure the health of its U.S. advertising budget for these vehicles, even as the ad campaign for the new Beetle is launched.

New Supplier Strategy

Purchasing costs represent approximately 60% of the cost of production for Volkswagen cars, with 60-65% of parts coming from outside suppliers. (Of these suppliers, 80% produce in Germany, and 15-18% in rest of Europe, with the remainder elsewhere in North America and Asia.)

Volkswagen has begun to include suppliers in the assembly process itself. By directly employing only engineers, managers and supervisors, and requiring suppliers to employ their own workers in the assembly plant, Volkswagen hopes to facilitate the development of new components and models. According to this new supplier strategy, parts suppliers are also expected to shoulder part of the financial burden of building

the assembly plant itself. As a result, Volkswagen expects unprecedented productivity gains. If it proves effective, Volkswagen will use the strategy in production in North America and around the world.

Porters five force model

Threat of new entrant: 1) Nissan, Renault, GM

2) New Technology

Bargaining power of buyers:There will be an indirect relation between the bargaining power of buyers and various product segments. More options to choose from the segment Volkswagen operates in. Honda, Toyota (Accord, Civic, Corolla) already capturing bulk of the market due to its advanced petrol engines. Skoda has been successful mainly because of its diesel offerings (Octavia, Laura). The D segment Market has been growing consistently.

Bargaining power of suppliersBargaining power of suppliers would be high since VW does not deal in mass production unlike Maruti and Hyundai.

SubstitutesVolkswagen does not have substitutes in India currently for its diesel offerings except for the recently launched GM Optra and Hyundai Sonata. But Volkswagen easily scores over these products due to the brand recognition and loyalty it carries in the country. VW offers the widest range of diesel cars in the D segment. Niche products like Lamborghini & Bentley do not have competitors in the Indian market.

CompetitorsHonda, Toyota, GM, Hyundai are its direct competitors

VOLKSWAGEN’S ADVERTISING STRATEGY

One of the most successful ad campaigns of all times happened to be an automobile advertisement. The campaign was for the original Volkswagen Beetle. Everyone recognized the Volkswagen advertisements of the 1960’s. The new magazine advertisements were relief to the tired eyes of the average magazine onlooker. Most of the ads today were full of clutter, vast amount of colors, and enough print one could mistake the ads for an actual article; the Volkswagen ads have only one sentence, an occasional a small picture of a beetle, and a refreshing solid white background.

In the November 2000 addition of George magazine, a Volkswagen ad was the centerfold. The advertisement appears to be two blank white pages at first glance. Once one looks at the advertisement though, one notices a sentence at the bottom right-hand page that says, “Just thought we’d give you a moment amid the political hoopla to think about those issues that matter to you.” That one sentence can bring a smile on anyone’s face.

The advertisement in InStyle magazine slightly differs. The ad is still a double page spread with a white background; however, this advertisement has a small green beetle in the center of the right page and a sentence centered on the left page that says, “Other cars are starting to look funny.” The yellow-green color of the bug has a significant effect on the ad. It is not a surprise that the beetle is in a color that symbolizes a “resurrection of the just” (Brewer) considering the beetle itself was resurrected. More important then the symbol of the color green is the physiological effect of the color green. Green suggests “stability, solidity, constancy, persistence, resilience of the will; and, in regard to the sense of self, a feeling of self-worth”. Does not that describe the ideal car?

The Volkswagen symbol is a blue circle with white letters that allow the V and W of Volkswagen to coexist. It is important to know Volkswagen is a German automobile and “Germut” is a word in German “that cannot be translated into any other language” . The word describes the psychological effect of the color blue. The description of the word “Germut” is “the ideal of unity and harmony. It is the primal maternal attachment, loyalty, trust, love and devotion. Blue is symbolic of timeless eternity and of harmony in historical time, that is, tradition” . With that definition, it is obvious why Volkswagen would pick the color blue to be their symbol. The color describes everything one looks for in friend, family, or lover. Blue was selected to suggest romance. “The romantic ads tell us the car will make us feel sexy and safe and loved, that it will give us passion and security in a world that is both humdrum and dangerous, and sometimes that it will substitute for human relationships”.

Internet addresses printed on the corner of advertisements are now as common as copyright symbols. The masterminds of Volkswagen however use their internet addresses as a plug for even more advertisements. If one were to visit the web site not only can they buy the car of their choice, but they can also download the commercials for Volkswagen just in case the print ad did not already sell the customer on a Volkswagen automobile. According to the press releases on the Volkswagen web site, the advertisements are working. This past year Volkswagen sales are breaking records with percentage increase in sales per month ranging from 5.8% up to 29.7%. The Volkswagen campaign is once again a success.

In 2006 Volkswagen had unexpectedly decided to go back to the Rabbit name for the North American version of the car known to the rest of the world as Golf. In a surprise move, Volkswagen of America, Inc. announced that its all-new fifth generation Golf is going back to the original Rabbit nameplate for the U.S. and Canadian markets. The reintroduction of the Rabbit represents Volkswagen’s commitment to this market and is a nod to the passionate North American enthusiasts who have an emotional connection with the Rabbit name.

Boston Consulting Group’s Growth-Share Matrix

STAR

Bentley, Lamborghini

QUESTION MARK

????????

Bugatti

CASH COWSVolkswagen Passenger cars, Audi, Skoda

DOGSVolkswagen Commercial Vehicles, SEAT

MARKET GROWTH RATE

RELATIVE MARKET SHARE

VOLKSWAGEN STRATEGY IN INDIA

Launch of Skoda before VW brand

Volkswagen strategy of introduction of Skoda in India was the part of VW’s long standing strategy of gauging the price sensitive Indian market. The company wanted to understand which models in its vast stable would appeal to Indians also the didn’t want failures to tarnish the VW image which would hamper its future prospects of entry in Indian auto market. The company also used the Indian experience to pitch its brands against major auto companies like Honda and Hyundai.

VW to integrate Indian facilities

Volkswagen (VW), the German auto giant, has gone one step ahead of its European and Japanese rivals to save cost and make cars more affordable in India.The VW group will integrate all of its manufacturing facilities in India to contain costs and check on uninterrupted supply of auto parts. This is perhaps the first strategy of its kind to be seen in the country among global car makers.

Manufacturing plants of Skoda, VW and the new proposed Audi plant would be designed in such a way that it can produce cars of any of the group companies. The VW group owns the Skoda and Audi brands. The current models of Skoda Auto including the Fabia, Laura, Octavia, Superb and future launches such as the Roomster (MPV) and Yeti (SUV) can be produced in VW’s plant in Pune or at Audi’s facility.

VW entry into commercial vehicle market

Volkswagen is gearing up to enter the Indian commercial vehicle market. The firm has decided to first target the light commercial vehicle and armed forces market with its range of armoured vehicles, multi-vans and the Caddy pick-up utility vehicles. The vehicles being imported include the VWLT multivan as an 8-seater armoured vehicle, the VWLT multivan built as an ambulance and the VW Caddy pick-up. In the next phase, VW intends to roll out its range of minibuses here. Later, the firm is also contemplating introducing its range of sports utility vehicles and passenger cars, including the popular Golf. The commercial vehicles would be available in both petrol and diesel options. “The armoured vehicles provide safety according to stringent German armouring protection standards. These vehicles have been specifically developed to meet the requirements of police and border control forces, and will provide reliable and secure transportation for all the security forces,” the sources added. The ambulances also conform to European standards and regulations. “VW intends to enter into licensing agreement under which the advanced armouring and ambulance technologies will be transferred to India.” VW, it may be recalled, had initially planned to enter India in a JV with the government. However, the low sales volume forced it to back out of the venture. The

government then joined hands with Suzuki Motor Corp of Japan to form Maruti Udyog Ltd.

VOLKSWAGEN G-LOCAL STRATEGY

The Group's passenger car business is divided into two Brand Groups. Under the leadership of the Group, the Audi and Volkswagen brands are responsible for the results of their respective Brand Group worldwide.Audi's Brand Group is made up of the Audi, Seat and Lamborghini brands and places an emphasis on sporty values. The Volkswagen Brand Group is made up of the Volkswagen, Škoda Auto, Bentley and Bugatti brands and stands for more classic values. Each brand retains its differentiated brand-image and operates as an independent entity on the market. Together, the product ranges extend from the low-consumption 3 litre vehicle to luxury class vehicles. The Group’s commercial vehicle products are the responsibility of the Volkswagen Commercial Vehicles brand. Across all its brands, the brand group responded to declining markets with flexible adjustments of production.

RISK MANAGEMENT SYSTEM. The aim of all business activity is to identify and exploit opportunities to enhance the value of the business. In this, Volkswagen – as a Group of companies operating on a worldwide scale – is also exposed to risk. The responsible handling of global uncertainty forms part of the risk management system operated by Volkswagen. The object of this system is to identify business risk in a timely manner and to limit it to such an extent that the economic benefit of the relevant business activities outweighs the risk.Alongside the existing reporting and early warning system, the risk situation is routinely assessed on the basis of written and verbal surveys. The risk management system is an integral part of Group management practice, and has been assessed by the Company’s external auditors. Accordingly, it conforms to the requirements of the German Law governing controls and transparency in business (KonTraG).

eBUSINESS ACTIVITIES enhancing VW’s relation with OEM, Partners & Suppliers

In close collabouration with its suppliers, Volkswagen has progressed its e-Business activities begun in 2001 from a B2B marketplace to a B2B supplier platform. The portal at www.vwgroupsupply.com optimizes the information flow between the Volkswagen Group and its partners while at the same time creating a stronger link between supplier and Group processes.The core of the system is the new “VWGroupSupply” supplier database, which in future – containing, as it does, all the suppliers to the Volkswagen Group – will represent one of the largest component supplier listings in the automotive industry. In it, all suppliers will be able to record their individual calling cards – that is, the range of products and services they offer to the Volkswagen Group.

The virtual applications, including the "Electronic Supplier Link (ESL)" online inquiry facility online negotiating online catalogue purchasing "eCAP" capacity management online standard texts will save time, cut costs and so boost the competitiveness of the Volkswagen Group. This communications platform now also

integrates other processes, such as technical modifications and invoice processing, online.

The Volkswagen Group already manages nearly its complete procurement volume of more than € 50 billion via the Internet.

The internet platform started in early summer of 2000 is up and running. Under the domain "VW Group Supply.com" the most important components Online Catalogs, Online Inquiries, Online Negotiations and Capacity Management have already been introduced to all brands and regions of the Volkswagen Group.

VOLKSWAGEN’S CRM INITIATIVE

The major business challenges that were address through mySAP CRM were unresponsive customer service and slow reaction times. FAW-Volkswagen implemented mySAP CRM Customer Interaction Center (CIC) for sales, service, and marketing. Customers could now reach the company.s customer contact center via telephone, fax, e-mail, and the Internet on a real time basis and access information about new products and services. mySAP CRM is tightly integrated with the core SAP enterprise solution at FAW-Volkswagen to enable communication and information sharing between customers, service representatives, and the entire enterprise

Corporate Socail Responsibility at Volkswagen

The signals of the capital markets and stakeholders are clear: social responsibility and sustainability as keystones of a long-term corporate strategy contribute to the differentiation of companies in product and capital markets. A total of 40 projects and initiatives demonstrate how Volkswagen brings together wealth creation and value orientation for a “win-win” situation. “For us, responsibility and income are two sides of the same coin,” said CEO of Volkswagen, Dr Bernd Pischetsrieder in his foreword. Volkswagen orients itself to its own standards as well as international conventions and encourages the worldwide implementation of human rights and better environmental protection, e.g. by taking part in the Global Compact.

On the occasion of the UN Earth Summit for Sustainable Development in Johannesburg in 2002 Volkswagen acceded to the Global Compact and published a brochure on how the Group implements the 10 principles on environmental protection and health and safety at work, against corruption and for human rights. For example, participation in the International Labour Organisation “SafeWork” programme will help to improve safety at work in the take-off countries of Brazil, Mexico and South Africa. Volkswagen also involves its suppliers in this, as it does in the “Sustainability in the Supplier Chain” project. Progress can also be seen in the fight against Aids. Support for preventive measures and medical care means that the hospital stays of aids patients in Brazil have been reduced by 95 per cent within 10 years.

To realise the guiding principle of sustainable mobility, Volkswagen cooperates with governments, environmental associations, unions and academic and research

institutions as well as with other car and oil corporations. Just recently, Volkswagen was a co-founder of the Alliance for Synthetic Fuels in Europe in Brussels. In a detailed chapter of the brochure Volkswagen actively deals with the effects of globalisation. Many examples clearly show that globalisation primarily offers development opportunities of mutual benefit. By strengthening the management functions for the integration of CSR and sustainability in the business processes, Volkswagen will continue to advance its activities for sustainable and responsible company development.

Volkswagen responsibility for the environment and the climate

Model policyVolkswagen will be launching a particularly efficient and low-emission vehicle under the “BlueMotion” label for each model series It started with the Polo and Passat, and will be continuing with the Golf. These models feature particularly efficient engines, low-friction tires, longer gear ratios, etc. With their low fuel consumption they will represent the benchmark in their class.  This strategy is already bearing fruit: With CO2 emissions of 102 grammes per kilometer, the Polo BlueMotion is the best in its class. Volkswagen has proved that powerful engines can also be thrifty with the Passat BlueMotion; equipped with a 105 hp engine and consuming 5.1 liter diesel/100 km, this model emits a mere 136 grammes of CO2 per kilometer. Furthermore, Volkswagen is conducting intensive research into alternative fuels and has for many years been investing billions in reducing consumption in direct-injection diesel and gasoline engines.

Volkswagen and bioethanol initiative of volkswagenVolkswagen has been pressing the case globally for the increasing use of bio fuels such as biodiesel and bioethanol. As the developer of innovative engine concepts such as TSI, FSI, and TDI, Volkswagen was quick to see the need for continual development of modern fuels. The objective throughout is to reduce the use of fossil energy resources by replacing them with regenerative fuels. This helps to preserve existing mineral oil reserves and actively contributes to CO2 reduction and protection of the climate.

Volkswagen's innovative drive concepts are already capable of using an up to ten percent volume blend of bioethanol in petrol (E10) within the specifications of a future fuel standard. Volkswagen is promoting the increasing spread of biogenic fuels with its modern engine technology that is prepared for the use of ethanol blend fuels. This is an important element in their future-oriented fuel strategy The Golf GT with its newly developed TSI technology is the prime example of this. TSI combines the two forced induction concepts, supercharger and turbocharger, in a direct injection petrol engine. By developing this extremely powerful and economical unit, Volkswagen demonstrates that E10 blended fuel can already be used in the most progressive direct injection petrol engines globally.

VOLKSWAGEN’S DESIGN AND MARKET RESEARCH INITIATIVE

With the goal of detecting market tendencies that would allow it to continue being at the forefront of automobile design and production, Volkswagen group decided to open its design studio at Simi Valley in Los Angeles California. Set in the north, the studio was the “base of operations” from which to study the market, mainly the North American one, and to make proposals regarding the satisfaction with the current tendencies.

It was the result of intensive market research of Volkswagen the led to the development of the NEW BEETLE which even in its concept phase won many awards and accolades in various Auto Shows all over the world.The production line in its Pubela,Mexico plant was modified within no time to start the production of Beetle within no time. After nearly 7 years worth of research, studies, previous presentations and other activities, Volkswagen’s New Beetle is officially introduced as a car for serial production at Detroit’s Auto Show on January 1998. The public’s welcome forced the enterprise to revise and change it’s initial goals, which estimated 300 units per day during the first year, duplicating this number to 600

SWOT ANALYSISStrengths1) VW has boosted quality more than any other carmaker in the past five years, cutting defects by 60%.2) Their "family culture", no leading brand.3) The VW group has the flagship of some of the biggest and most trustworthy brands in the automobile industry. 4) Strong Procurement department with Sustainability in Supplier Relationships.5) Strong CSR activities bringing together wealth creation and value orientation.

Weaknesses1) VW still trails Toyota, Mercedes, Nissan, and Honda in overall quality. 2) VW's cost of capital is relatively higher than Daimler's.3) VW bungled its communications with investors.4) It was late in inculcating the policies of Lean and JIT approach that Toyota was using for many years.5) Bad publicity due to being sued by GM.

Opportunities 1) Growth potential in the American and Asian markets. 2) Due to its very good results on the stock exchange, VW may expect to attract numerous new investors 3) Potential decrease in Cost with their Production Strategy.

Threats 1) A softening in auto sales in Europe and South America.

2) Risk of self-cannibalization between VW's brands, like top of the line VW's models and bottom of the line Audi's. 3) Risk of brand dilution owing to confusion between the VW Passat and the Audi A4. 4) Ever increasing fuel costs.

Group Strategy in 2015

A clear, long-term orientation is essential for making decisions on short- and medium-term measures. In view of this, Volkswagen has geared its operating policies towards sustainable market success and income generation as part of the Group Strategy 2015. Transparent and uniform processes throughout the Group are designed to bring about shorter development, vehicle order and throughput times, to increase the efficiency of capacity utilization in the plants and to boost the effectiveness of the distribution network. In future, the Volkswagen Group will focus exclusively on its core areas of competence. In all other areas, it will work together with external providers on the basis of agreements governed by mutual trust, contracts or company law. The financial targets of the Group Strategy 2015 for the Automotive Division include an ROI of at least 9% and an operating return on sales before tax of 6.9%. Further targets are:

1. The Volkswagen Group to be the world leader in terms of customer satisfaction, quality and delivery performance.

2. The brands and their products to be clearly and separately positioned in the market.

3. Volkswagen want to become employer of choice for extremely competent and highly motivated employees and the cooperation partner of choice for high-performance suppliers and dealers.

ANNEXURES

1. NAFTA

Annex 300-A: Automobiles (one of the most sensitive areas in the NAFTA negotiations, in spite of the fact that there is already considerable integration between the three countries. Major concern the possibility that European and Japanese producers could use Mexico as an export platform to the United States and Canada)

Focused on the liberalization of Mexico’s 1989 Auto Decree, because the Canadian and U.S. auto industries were already liberalized and integrated.

Gradually removes Mexican trade barriers and investment incentives as well as other performance requirements (link imports to the use of domestic products and exports):

domestic content: 36% to 34% by 1998, 29% in five years, and 0 in 10 years trade balancing requirement from: $2 of car exports for every dollar’s worth of

imports to 0.80, then to 0.55 in 2003, and eliminate it by 2004

eliminate quota on new-car imports, but manufacturers are required to produce in Mexico in order to sell there, for ten years.

Rules of origin, from 50 per cent in FTA to 62.5 percent (net cost method and tracing test). Tracing test considers a foreign assembled automotive good 100 percent North American if it has more than a 50 percent domestic proportion of value added of one partner country (this part could be 49 per cent of the final good) and if it is combined with an assembly that also has more than a 50 percent regional content. The rule is applied to the value of 69 parts—engines and transmissions—and is subtracted when calculating the net cost of the vehicle.

North American investors may invest up to 100 percent in Mexican suppliers of parts