By Kevin Meyer
Half a year ago Bill made an interesting prediction on the future of Volkswagen that made several of us wonder what he might have been smoking. But once again, he may have been prescient.
I have been known to make a fairly radical prognostication from time to
time and I will make one now – within few years Volkswagen will be
increasing their lead over the rest, gobbling up Toyota and Ford market
share, and they will emerge as the dominant auto maker of the next
decade by a wide margin.
His rationale was simple: a commitment to long term excellence and strategic objectives even at the expense of short term returns – a concept rarely found in large especially public companies.
"Starting next year, VW will introduce a so-called "long term
bonus" plan, in which managers will be rewarded according to customer
and employee satisfaction, as well as their achievements in sales and
the company's rate of return. In addition, VW will no longer offer stock
options." This according to Deutsche-Welle
a few days ago. The article goes on to state that bonuses will be
based on results in those areas over four years, rather than yearly or
even quarterly stock values. Said VW Director of Human Resources Horst
Neumann, "We want there to be a close relationship between bonuses and strategic objectives."
Fancy that – tying executive compensation to long term accomplishment
of strategic objectives, including customer and employee satisfaction
instead of having it driven solely on the basis of how much money can
flow into an investor's pocket in the next couple of months.
In one fell swoop, Volkswagen will be changing the scope of their
management thinking, and taking it to a level most cannot fathom.
So today we hear about some of Volkswagen's strategy in an article discussing the challenges still facing GM.
Like awarding one little league team five outs per inning and six
strikes per batter, then doing a victory dance because they have a good
inning, President Obama applauded the "success" of his GM bailout in a
visit to Detroit last week. As much as GM benefited from being able
to shed debts and other expensive obligations in a government-financed
bankruptcy, the real test will be whether GM can go forward and adapt
successfully to a relentlessly competitive market.
GM still has to contend with the United Auto Workers (UAW), a
government-orchestrated labor monopoly that its foreign competitors
carefully avoid. It still has to contend with fuel-economy rules purposely tweaked by
Congress to prevent GM from sourcing small car production offshore in
non-UAW factories. It also still has to contend with the ambitions
of powerful competitors seeking to survive and expand in the U.S
market—the latest being Volkswagen.
So what is VW up to?
Chief Martin Winterkorn has trumpeted a goal of becoming the world's
largest car maker by volume—an aim suddenly plausible for two reasons.
VW gets most of its sales in Germany, China and Brazil, where generous
scrappage and stimulus subsidies helped Volkswagen continue to grow even
through the subprime abyss.
That's an interesting one – a focus on "being the biggest" was a major factor behind the downfall of GM, and later the stumbles by Toyota. Biggest in terms of sales – which is not necessarily volume – is meaningless. It's value, translated into bottom line, that means something. Is VW pushing to be the "largest" just for the sake of being the largest, or are they predicting they'll be the largest by capitalizing on a solid fundamental strategy?
VW is a famous has-been in the U.S, still the world's most important
market, with high brand-recognition, meager sales, and nowhere to go but
up. Thus, while GM and Toyota have been closing and
consolidating U.S. plants, Volkswagen is pressing ahead with a $1
billion new factory to open in Chattanooga next year.
Volkswagen learned at least one thing during its plummet from the
heights as the dominant U.S. import brand in the 1960s. It was the first
to build a large, wholly-owned U.S. assembly plant. That now-defunct
plant, in Pennsylvania, was UAW-staffed and had been open only six
months when it faced its first strike in 1979. Taking a leaf from its
successors, which includes everybody from Mercedes to [BMW, Honda, Toyota, Hyundai] Kia, VW's new
plant in Tennessee will be nonunion.
competitors strive for a "world car" approach, VW is focusing on more
market-specific designs aimed especially at mainstream U.S. tastes. An
early down payment is the new Jetta, significantly bigger and boatier
than its predecessor, and priced about $1,700 less.
Again, an interesting distinction. Common-design "world cars" can create some efficiencies in terms of design, testing, and manufacturing flexibility – but once again the game is really about delivering value to the customer. Design and functionality value does seem to be converging among different global demographics – smaller vehicles with higher efficiency – but differences remain. Where is the value point?
VW's big bet is on the table. For all of Mr. Obama's happy talk in
Detroit, the car wars aren't over. The relentless pressure of
overcapacity is not cured.
That final statement is critical – is VW working toward a long-term value growth strategy, or are they being sucked into the siren call of being the "largest"… whether it's profitable or not? Time will tell.