Erva Kan & Cansu Murtezaoglu

MKTG 413
Group Paper
28 December 2015
Volkswagen Aktiengesellschaft, or Volkswagen Group is considered to be one of the top
10 largest companies in the world. VW AG, established in the 1940s, is a well-known German
multinational automotive manufacturing company. It is currently headquartered Wolfsburg,
Lower Saxony, Germany. VW AG has production plants in over 60 countries, and has a large
global presence that extends to more than 153 countries. The company primarily focuses on
designing, manufacturing, and distributing passenger as well as commercial vehicles in addition
to producing and selling car parts such as engines. In 2012, VW produced the second-largest
number of motor vehicles of any company in the world, behind Toyota and ahead of General
Motors. In 2014, it reached production output of 10.14 million vehicles. Such achievements have
preserved VW AGs presence in the global automobile industry. Some more popular names VW
AG sells under are Bentley, Bugatti, Audi, Porsche, Lamborghini and many more. The huge
success that is VW AG can be seen just from these well known names and what they mean to
people: success.
VW AG has maintained the largest market share in Europe for over two decades and is
currently the second-largest automaker in the world. As of 2014, VW AG has over 590,000
employees globally. The sales revenue in 2014 reached 202 billion.
The word Volkswagen translates to Peoples Automobile, and it is true to its name; in
Western Europe, more than one in four new cars (25.1 percent) is made by the Volkswagen

Group (The Group). The companys international slogan is Das Auto, or The Car.
According to the 2015 Fortune Global 500, it is the 9th largest company in the world. As
mentioned before, VW AG has other, some would argue more popular, subsidiaries such as
Bentley Motors Ltd, Audi AG, Bugatti Automobiles, and so on.
Vehicle manufacturing isnt all VW AG does. Although that is the companys primary
focus, it is not the only investment made. A fact not noticed by many is that the company invests
heavily in sports sponsorship. A few examples is the 2008 Summer Olympics or the more recent
2014 Winter Olympics. The company also owns a German football team. Excellence and
diversity are the key goals the company aims to achieve (Success Story).

VW AG distributes shipments from 119 production plants to its distributors which are in
159 different countries. Upon arrival of the shipments follow important process works. The
distributor claims ownership of the vehicles once the shipments have arrived. Sub-contractors
transport the vehicles and parts to retail shops, which eventually are available for the consumers.
VW AG uses group companies in over 20 markets. This helps the company achieve goals in a
shorter amount of time. The company works close with the dealers, this also creates more
transparent sales. VW AG has wide range of brands and it helps them to promote independency
of the brands. VW AG is a very large company; its world passenger car market share is 12.9
percent. The company produces many things like; motorcycles, low-consumption small cars,
luxury vehicles, pickups, buses and heavy trucks. VW AG also manufactures large-bore diesel
engines for marines, turbochargers, turbo machineries, compressors and chemical reactors, in
addition to vehicle transmissions, special gear units for wind turbines etc (The Group). So, it is
important for this company to operate very smoothly. In order to do so, they focus on creating
stable and close relationships with their dealers. The company uses group dealers to make
distributions in different countries. It is easier to control operation chains. Then, those dealers
send the cars to their own retail shops and then to other dealers. This is the basic process that
carries the product from producer to consumer.
Potential problems that could rise in Volkswagens distribution channels are likely to
come into existence due to pricing, convenience. For example, Volkswagen sells spare parts for
its cars, however, the parts are not very price efficient or easy to get a hold of. On the
Volkswagen website, it is specifically stated that the products are sold on a first come, first serve
basis--while supplies last. Volkswagen makes it even more complicated by pushing forth a no

returns, no core changes policy. In addition it is explicitly stated on the website that all
shipments will be ground transportation and may take several weeks to arrive at your local
dealership. This is blatantly inconvenient because even if customers have the finances to
purchase a brand new part with the ridiculous costs, most customers do not have several weeks
to wait for the product to arrive at their dealership, which they have to visit once it arrives to
purchase the item--if there is any left that is. Inconvenience due to location; Volkswagen does
not directly sell parts but only through distributors, which is also hard to get a hold of because
most parts have to be specially ordered, the challenges customers have to deal with because of
the wait period in terms of not being able to drive their car, in addition to cost; customers have to
pay unhandsome prices for both the product and for the installment or service the product
requires in order for their car to be up and running, are some of the main reasons a customer
would find the gray market more appealing.
This is a problem that distributors also face. More often than not, especially when it
comes to cars, customers prefer gray markets prices and services as the prices are lower and
services provided are faster. Thus making it more convenient for the consumer. For an individual
who drives every single day to not be able to do so would be chaotic and would have a
significant amount of impact in the individuals life. Experiences as such are not easily forgotten,
especially when other, more convenient, better priced alternatives exist.
Although Volkswagen have not had many problems with their car parts being purchased
from grey markets what they did have a problem in the past with was grey market cars. Grey
market cars are illegal in some countries like the United States and Vietnam. However, it is very
much legal in European countries.

Individuals seeks out grey market cars for multiple reasons; some of which make sense.
Some cars simply are not sold in certain countries. Thus leading customers to go to other
countries and in order to purchase such cars. Another reason is some countries take less tax,
when something as expensive as a car is in concern, the tax can amount from something low as
couple hundred dollars to something large as couple thousand dollars, which increases the price
of the car by a significant amount. This was one of the challenges Volkswagen could face as the
European Union still allows, or encourages such purchases. In fact, in 1998, Volkswagen was
fined by the European Commission as response to Volkswagen attempting to prevent such
purchases.
The recent Volkswagen scandal certainly raised some eyebrows. In an industry that is as
competitive as the automobile industry, loyalty is important. Loyalty is one of the many
beneficial results of a relationship that is built on trust. This is a difficult relationship to build but
very easy to destroy. As was the case with the scandal, breach of this trust has a very negative
and detrimental result, mostly on the producers side. The consumer has the option of simply
choosing another brand. This is something that the producer does not have the luxury of doing,
they cannot create new consumers to purchase their products. The only option the company has
is to apologize and try to fix it; perhaps provide some initiative for the consumers to continue
being their customers; discounts, upgrade deals, are just to name a few. However, in case a
situation like this rises again, VW AG must be prepared. It would be naive to assume that the
company will never repeat such mistakes, surely the company will not repeat the specific
mistake but that does not mean VW AG will not make any mistakes in the future. History has a
habit of repeating itself, the only way an individual, or a company, can be on the winning side

of history is to look at past mistakes and avoid being the fool. Also learning from such mistakes
is essential to avoiding similar mistakes.
Grey markets and the additional competition they create, which usually results in the
producer competing with its own products, are a problem that could potentially have a large
impact, even on a company this big. It is impossible to win every round so its best to pick the
battles worth fighting. This especially applies to grey markets. A company like VW AG could
financially afford tracking every single product as to make sure only authorized dealers are
selling to consumers. However, this would completely destroy the benefits that could come from
grey marketing like reaching markets that VW AG would not be able to, due to legal issues or
others. VW AG could track only certain products. VW AG could have a research team focus on
what products are most popular in the grey markets. According to the results, VW AG could
either give price discounts for these specific products to attract customers back to authorized
retailers or the company could track these products. It would simply not be logical to track every
single product.
Grey market services are also another problem that distributors often face. Why would a
sensible consumer prefer a service that is much more expensive and time consuming, when there
are cheaper and faster options? In order to fix this problem, first and foremost, VW AG must
listen to its consumers concerns. If customers want faster service, that is exactly what VW AG
should require of its distributors to deliver. For instance, authorized services could set a time
limit, similar to that of dominos 30 minutes or free.Although it would not be the exact same
deal, they could potentially have deals in which they finish the service in less than 3 days and if
it takes any longer the company offers to pay for the rental car, assuming that one would be

required if it lasts longer than 3 days. Even though it would not be likely that customers get to
take advantage of such a deal--as certainly the company would do their best to perform the
service within the set time, since doing otherwise would be the failure of the company to deliver
their promised service--it would give consumers initiative to prefer these authorized places.
The third main problem a company such as VW AG could face, and has already, is
scandals like the recent one. A potential solution is to not perform unethical actions, however, as
mentioned before, it is not likely that VW AG will suddenly be perfect and make no mistakes
ever again. Another, more simple solution to a problem like that is research. Research proves that
sometimes it is best to admit a mistake. With research, VW AG can figure out how to make up
for their mistake that affected not only those who had purchased their false products but all
consumers who had purchased any VW AG products. Surely consumers felt upset by the
betrayal. In result, the one affected most was VW AG.
In conclusion, Volkswagen is a big company that has a very large global presence in the
automobile industry. Like in every industry, there is a lot of competition in the automobile
industry. Due to this, it is important for VW AG to constantly monitor the market and customers
demands, in order to avoid the rising of potentially harmful problems. Research is key.

WORKS CITED
World Ranking of Manufacturers: Year 2012" (PDF). World Motor Vehicle Production: OICA
Correspondents Survey. Organisation Internationale des Constructeurs d'Automobiles. 2012.
Volkswagen. Fortune Global 500. 2015.
"First goal of Strategy 2018 achieved: Volkswagen Group delivers over ten million vehicles for
first time". Volkswagen. 12 January 2015. Retrieved 12 January 2015.
The Group. (2014). Retrieved December 11, 2015, from
http://www.volkswagenag.com/content/vwcorp/content/en/the_group.html
Volkswagen Success Story. (2015). Retrieved December 22, 2015, from
http://successstory.com/companies/volkswagen