Almost every automaker on the planet has begun to signal their desire to keep up with the times by collectively revising their business strategies. The new popularity means lower sales, higher profits, and electric vehicles that drive connected services, allowing manufacturers to charge you piecemeal for nearly every feature imaginable.
While the Volkswagen Group has been at the forefront of these trends since the Dieselgate scandal helped force it into action in 2015, it has often suggested the switch to electric vehicles would be a boon for low-income families. It’s not the only automaker to make such a promise, nor the first to renege on a promise after deciding it might make more money with a high-end car. Volkswagen has decided its ideal strategy is to phase out 60 percent of its internal combustion engine vehicles over the next eight years and focus on higher-margin and more profitable products.
Ironically for a company that started producing low-cost cars before World War II aimed at increasing Germany’s car ownership, the company’s name translates directly to “the people’s car.” But it’s been around for 85 years, and most people would probably say that even in Volkswagen’s early days, there were serious ethical ambiguities. It’s not a matter of isolating the Volkswagen Group here. Many companies (including other automakers) have been accused of similarly bizarre behavior, then and now.
There is often an incredible difference between what a company says and what it ends up doing, especially when others seem to be doing it and the smell of money is in the air. Volkswagen did keep its commitment to EVs, leadership just wanted it to have a truck full of money.in a recent interview Financial TimesVolkswagen’s CFO explains how to do it.
“The key objective is not growth,” says [CFO Arno Antlitz] Contrary to the stance taken by former VW executives.
” We are [more focused] Quality and profit, not quantity and market share. Volkswagen will reduce its range of petrol and diesel cars in Europe – which includes at least 100 models from multiple brands – by 60 percent over the next eight years, he said.
Volkswagen’s new strategy marks a profound change in the wider auto industry, which has for decades tried to boost profits by selling more cars each year, even if it required deep discounts.
This Financial Times It is correct to believe that this is a strategic change for the entire industry. Automakers want to see high market valuations, and they seem to be determined collectively based on how quickly they can replicate brands like Tesla. But they also learned that by reducing overhead and charging more when production fell, they could still generate substantial profits during turbulent times. In the wake of the pandemic, many businesses are operating exceptionally lean. They now realize that this could be an effective long-term strategy, as long as they don’t chase volume — hardly anyone would when global supply chains were so bad and consumers showed a curious desire to be ripped off.
It’s also a much cheaper solution than investing in a manufacturer’s own facility to make more components. Although the money for developing electric vehicles and “mobility solutions” has already taken a toll on the finances of some companies. Despite government calls to boost electric vehicle sales ahead of Europe’s planned ICE ban, automakers still face significant risks from electric vehicles.
Adoption within the EU may increase, but many The vast majority of North American drivers don’t care, study shows. Even places like Asia and Europe show that there is a strong alliance of motorists who feel the same way. This is forcing automakers to rethink how they approach individual markets in terms of products, which is incredibly difficult when you have to plan years in advance.
It is also difficult to say whether the Volkswagen Group’s strategy is correct. My own bias makes me very skeptical that pure battery EVs will hit the market when hybrids come along. But I’m more concerned that, after having been doing this for a decade, the entire industry suddenly decides to accept lower volumes and higher profit margins. The average number of auto deals hit an all-time high, and inflation is just the latest contributing factor. Before that, we’ve seen more than a dozen manufacturers opt out of some of the more affordable models in pursuit of higher profits. In times of economic hardship, we now seem to be getting a second helping of all but the highest earners in the world.
Because with the concept of “sustainability” being frequently raised by automakers, the plan seems rather short-sighted. Anyone going upmarket ends up leaving a huge opportunity for any brand that is still selling affordable cars. Assuming regulations don’t require it to play the same game as everyone else, this could lead to a handful of nameplates occupying certain segments without much competition. Chinese automakers have already made inroads into Europe by undercutting traditional automakers, lending credibility to this theory. But we’ve seen this happen before with Korean and Japanese brands flooding into Western markets.
While permanent growth isn’t thought to be fully sustainable either, former Volkswagen CEO Martin Winterkorn has pledged to make the automaker the biggest by sales before stepping down after the Dieselgate fiasco business.
The rest of VW’s eight-year plan is harder to pick, especially the focus on improving quality. After several stalled product launches, some of Volkswagen’s latest models have had issues. For example, the Golf Mark 8 has been repeatedly delayed due to software issues, and then a number of minor issues that still seem unfixable after several consecutive European recalls. Some of the company’s ID-branded EVs have experienced similar issues, He tried to fix it with live updates. While OTA is neat, many people are not interested in connected cars and just want to see the car leave the factory in a finished state.
Another aspect of Volkswagen’s plan that has been largely ignored is the decision to shift production from Europe to the United States and China, the latter of which is a priority. As a direct consequence of the conflict in Ukraine, CEO Herbert Diess also said global markets will be volatile until at least 2026. That’s a bit odd, since the company still sells more cars in Europe than anywhere else. But he has also clashed with his union over potential job cuts due to the switch to electric vehicles, arguing that the EU will have the highest future material and production costs.
[Image: Volkswagen Group; nrqemi/Shutterstock]
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