Management Approach

The automotive world is undergoing a period of revolutionary change, and autonomous driving, e-mobility, connected vehicle concepts and the dynamics of digital transformation are showing the new way forward. Technological innovations are exerting huge influence on customer expectations and established business models, new players are entering the market, shorter innovation cycles are the norm, and the development of new core competencies requires steadily increasing capital investment. Combined with ever more stringent emissions standards and a highly volatile market, all these factors are creating ever more demanding market conditions. This presents us, as an automotive manufacturer, with new challenges – but also with a whole range of new opportunities, including prospects for lasting growth. Our aim is to operate responsibly along the entire value chain. Everyone should benefit from this – our customers, our employees, the environment and society as a whole. We intend to become one of the world’s leading providers of sustainable mobility, creating enduring values, offering good working conditions, and treating the environment and natural resources with due care.

The early identification of pioneering developments and trends in the ever more complex fields of social, political, technological, environmental and economic activity represents an important basis for innovation and thus for the success of our business. This awareness of current and future trends is crucially important for the correct orientation of our research and development activities. Only if we are armed with a reliable vision of technical possibilities and at the same time, of their limitations, can we position the Group in such a way as to ensure sustainable growth. This is why the Volkswagen Group’s research institutions scattered throughout the world’s key automotive markets monitor pioneering developments directly at the coal face, thereby gaining crucial insights that will help safeguard the Group’s future.

In the reporting period, we focused our research activities on devising new mobility solutions, as well as developing expertise in technological innovation that will make us even more competitive. Our development activities focused on expanding our product range and enhancing the functionality, quality, safety and environmental compatibility of our products.

Our company’s long-term success also depends on how promptly we identify risks and opportunities, and how systematically we comply with laws, regulations, ethical principles and our own voluntary commitments. Thus prudent risk management, effective internal monitoring systems and a stringent compliance organization are of enormous importance to us. Not only do we set high standards within the Volkswagen Group, we also insist that all our suppliers along our entire value chain comply with these standards.

Market Developments

In 2016, the pace of global economic growth was slightly slower than in the previous year. By contrast, global demand for vehicles was higher. Despite persistently difficult market conditions, the Volkswagen Group delivered more than 10 million vehicles to customers. In the reporting period, we launched a large number of attractive new models on the market, some of which were based on the Modular Transverse Toolkit (MQB). The current product portfolio comprises 336 models, covering almost all key segments and body types, ranging from subcompact cars to supercars in the passenger car segment, from pickups to heavy trucks and buses in the commercial vehicles segment, plus motorcycles. By taking account of regional market and customer needs, we have systematically geared our product portfolio to profitable growth.

Global Demand for Passenger Cars Hits New Record High

In fiscal year 2016, the number of new passenger car registrations rose to 81.1 million vehicles worldwide, exceeding the previous year’s record by 5.4%. Demand was up in the Asia-Pacific, Western Europe, North America and Central Europe regions, while new passenger car registrations in South America, Eastern Europe and Africa failed to match the previous year’s levels.

We expect trends in the various regional passenger car markets to vary considerably in 2017. Overall, growth in global demand for new vehicles will probably be slower than in the reporting period.

The Volkswagen Group is well positioned to deal with the mixed development of automotive markets around the world. Our broad, selectively expanded product range features the latest generation of engines as well as a variety of alternative drive technologies, putting us in a good position compared with our competitors.

Our goal is to offer all customers the mobility and innovations they need, strengthening our long-term market position in the process. Our policy of adding maximum value at local level is a vital part of this approach – and with good reason. Not only does it allow us to reap numerous economic benefits, it also minimizes our risk exposure. In each case, we are an important local driver of growth, while at the same time being in a better position to accommodate our customers’ wishes.

Sector-specific environment

Sector-specific conditions were significantly influenced by fiscal policy measures, which made a substantial contribution to the mixed trends in sales volumes in the various target markets during the 2015 financial year. The instruments used for this were tax reductions or increases, incentive programs and sales incentives, as well as import duties.

Non-tariff trade barriers designed to protect various countries’ domestic automotive industries made the free movement of vehicles, parts and components more difficult. Protectionist tendencies were especially evident where markets were on the decline.

This is contributing to increased volatility in the global procurement and sales markets. In response to this changing environment, we intend to focus more strongly on high-growth segments and regions – such as the economy segment in China and India. In particular, as we continue to transform our core business, we will differentiate the positioning of our Group brands more precisely and further optimize our vehicle and powertrain portfolio as we target the most attractive, fastest growing market segments. We will unveil more SUV models, integrate digitalization more systematically into our products and provide important stimuli for the future through our e-mobility offerings. 

Key Figures by market1

  Vehicle sales Sales revenue
Thousand vehicles/€ million 2016 2015 2016 2015
Europe/Other markets 4,635 4,524 138,079 132,535
North America 968 941 35,454 35,384
South America 421 540 7,973 10,148
Asia-Pacific2 4.367 4,005 35,761 35,225
Volkswagen Group2 10,391 10,010 217,267 213,292
 
1 All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.
2 The sales revenue of the joint venture companies in China is not included in the figures for the Group and the Asia-Pacific market.

Quality Assurance

The quality of our products and services plays a key role in maintaining customer satisfaction. Customers are particularly satisfied and remain loyal when their expectations of a product or service are met or even exceeded. Throughout the product experience, appeal, reliability and service are what determine quality as perceived by the customer. Our objective is to positively surprise and excite our customers in all areas and thus win them over with our outstanding quality. We continued to aspire to this objective in the reporting period. The diesel issue has shown, however, that we must broaden our previous understanding of quality. Quality assurance now checks the compliance of our products even more intensively.

We are also placing greater emphasis on our quality management system than before, thereby reinforcing the process-driven approach across all our business activities Group-wide. Quality management in the Volkswagen Group is based on the ISO 9001 standard: we must comply with the provisions of this standard to obtain type approval for producing and selling our vehicles. Following the revision of the standard in 2015, we applied the new requirements to all the Group’s locations and brands during the reporting period. One key change in the standard concerns the assessment of risks in the event of non-compliance with defined processes. To ensure that we implement and comply with these and other new requirements, as well as all relevant official regulations, we have developed guidelines, tips and recommendations for our quality management consultants, and provide support as they apply them in practice.

As a further step, we now apply the multiple internal controls principle – based on mutual support and cross-checks between divisions – even more rigorously, and have developed important additional skills in, for example, software security. This particularly affects the control mechanisms between technical development and quality assurance before and after the start of production. In product development, we have introduced the same principle for the approval of power units. And at the series production stage, we are now working even harder to carry out conformity checks on our products with the participation of all business units involved, performing assessments and making decisions on this basis. This applies particularly to exhaust emissions and fuel consumption.

By taking these and other measures, quality assurance is ensuring that we not only satisfy all legal requirements imposed on us as a manufacturer, but that our products do so as well.

The Modular Strategy

Our modular platforms and toolkits allow us enormous flexibility in the design of our production facilities. The Modular Transverse Toolkit (MQB) and Modular Production Toolkit (MPB) enable us to cut development costs, manufacturing times and any necessary one-off expenses, and can also be used over several vehicle generations. The toolkits also allow us to use the same production systems in the same plant to manufacture different models from different brands in varying quantities. This means that we can use our capacities more flexibly throughout the entire Group, enabling us to achieve efficiency gains.

In addition to conventional petrol (gasoline) and diesel engines, the MQB also gives us the opportunity to integrate alternative powertrains, such as natural-gas, hybrid or electric drives. Previously, we had to make individual, vehicle-specific adjustments to each model. The MQB has created an extremely flexible vehicle architecture that permits the specific dimensions stipulated by the design concept – such as wheelbase, track width, wheel size and seat position – to be harmonized throughout the Group and then applied in flexible ways. Other dimensions, such as the distance between the pedals and front wheel hubs, are always the same. This ensures that the front of the car always conforms to the same system, making it easier to exploit synergies. The MQB platform used across the Group was installed in the eight millionth vehicle in late 2016.

All Group brands are surging ahead with the development of electric traction. We have expanded our expertise in this area by bringing additional technical specialists and experts on board. Based on the experience we have gained with existing vehicle architectures, we designed the Modular Electrification Toolkit (MEB) for the compact segment. This can be deployed across multiple brands for passenger cars and light commercial vehicles alike. The MEB means we can now develop very exciting vehicles and supports ranges of 300 to 600 km (190 to 375 miles) in all-electric mode. It also makes it possible to factor in vehicle-specific requirements and achieve savings by bundling volume purchases. Thanks to the Volkswagen Group’s modular toolkit strategy, modules can be deployed across different model series and brands, thus achieving substantial synergies. This applies in particular to models that share the same platform. We have integrated the production of electrified vehicles into the manufacturing processes at our existing plants, for example in Wolfsburg, Emden, Bratislava, Ingolstadt and Leipzig. The electric motors are manufactured at our plant in Kassel.

In 2016, we presented our visionary I.D. concept vehicle. With a range of up to 600 km (375 miles), the zero-emission vehicle is scheduled for market launch in 2020, and represents the vanguard of an entirely new fleet of highly innovative electric vehicles based on the MEB platform.