International vehicle manufacturing industry is dominated by few key players. Volkswagen is among the top companies that are recognized for their products having quality and good performance. The following section presents the BCG Matrix for Volkswagen group.
Cash Cows
Each product being manufactured by a company generated different amount of cash. Some products take a prime position in terms of getting a high return on investment. The market for these products is well established, therefore the investment need is less as compared to the products targeting emerging and developing markets. These products are knows as cash cows, which are the focal point of the management when it comes to sustainable earning. Volkswagen group is manufacturing some vehicles that are among the top selling brands in the automobile industry. For Volkswagen group, the cash cow is evident in the form of Porsche and Audi. Both of these divisions have reported high sales over the years. In case of Porsche, the annual sale revenue was 21,674 (€ million), while Audi has recorded revenue of 60,128 (€ million) in fiscal year 2017 (Volkswagen, 2017). In 2018, the car is estimated to have a brand value of $14.8 Billion, which is higher than Porsche. Even though Volkswagen has been dealing with litigations related to Audi, the brand has recovered its market segment, retaining a significant profitability (Volkswagen AG, 2018).
The demand for Porsche has been relatively strong as compared to the other business divisions, making it one of the consistently profitable ventures for Volkswagen group (Bryant, 2018). According to the Volkswagen (2017), the 4.7 % increase in sales revenue depicts strong market presence of Porsche. Another factor which makes the car a cash cow for Volkswagen is its inclusion among the most valuable automobile brands, bearing a brand value of $11 million.
Stars
There are some products that are in high demand in the market and are likely to develop further market demand in the coming years. The financially strong performance of these product segments is due to the growth potential of the market. Since the market is still growing, the company has to continue to make significant investment to ensure the continued profitability of the product. Moreover, the investment secures the future prospects of the star product becoming a leading cash generator as a cash cow.
Among the passenger cars, the brand that is of relevance in this context is SKODA which has recently gained a higher ratio of sales as compared to the leading brand of Audi (Taylor, 2018). In 2017, the brand revenue was 16,559 (€ million), but in 2018, its profit margin is likely to improve further due to the surge in its demand. SEAT is another star for Volkswagen group because of the favorable future prospects of the car. The sales revenue for the car has increased from 8894 (€ million) in 2016 to 9892 (€ million) in 2017.
Question Marks
Some products or business units being managed by an organization display a higher level of uncertainty as compared to the more stable products (cash cow and stars). These products are identified as question marks. Since the market has the potential for growth, organization can take the decision of investing in the question marks. However, the risk of failure is also present as the projected sales goals may not be achieved due to the shift in market dynamics. Bentley has shown some improvement in its financial performance in some regions, however, the sales of the brand in the US have declined which was a major market for these automobiles. The company has launched third generation of Bentley Continental which has received some positive response in the international market, generating a sales revenue of 1,843 (€ million) (Volkswagen, 2017). However, the overall financial performance of Bentley has declined from 2016.
Another question mark for the company is Volkswagen Golf which has seen a higher demand in the fiscal year 2017, however continued investment is needed to achieve sustainable profitability of this business unit in future. The Golf model has been updated with some new features and it is likely to take some time before the market is open to the idea of the updated model (Volkswagen, 2017). Moreover, e-Golf is also currently in the question mark category as the market for electric cars is expected to show rapid expansion in the coming years due to the increased emphasis on environment friendly vehicles. Therefore, e-Golf seems to have a potential for growth, making it a question mark that should be a part of financial investment.
Dogs
Not all products manufactured by a company achieve success in terms of ROI. Some business units fail to thrive despite the financial input by the company. These business units are termed as dog in the BCG Matrix. The low market share and low growth potential make it difficult for the product to establish a notable presence in the industry.
The dog for Volkswagen group is the VW Beetle. Even though this car was in high demand in the past, the new designs and emerging trends in the automobile industry have made the segment unprofitable. The chances for growth of the Beetle are also not likely to be as significant as other passenger and luxury cars. Therefore, the management at Volkswagen group has decided to discontinue with the Beetle production (Morris, 2018). This decision reflects the market dynamics where the product has become outdated due to the demand of cars with better features and facilities. In addition to this, the investment in production of Beetle was not generating the same revenue as compared to the other more trending brands such as SKODA and SEAT. According to Roth (2018), in 2017, the company was only able to sell 15,000 Beetles in the U.S which shows a sharp decline in the demand of the automobile. Furthermore, the features of the car made it difficult to have the same experience of smooth drive offered by other brands of Volkswagen. Therefore, a combination of these factors has resulted in making a once in demand car fall into the dog category.
References
Bryant, C. (2018, March 14). Among VW’s brands, only Porsche is more profitable than Skoda.. Bloomberg. Retrieved from https://www.bloomberg.com/gadfly/articles/2018-03-14/why-bother-with-an-audi-when-the-skoda-looks-this-good
Morris, C. (2018, March 12). Farewell Bug: Volkswagen Shutting Down Production on the VW Beetle. Fortune. Retrieved from http://fortune.com/2018/03/12/volkswagen-beetle-bug-production-shut-down-vw/
Roth, D. (2018, February 11). 2018 Volkswagen Beetle Review: You Won’t Be Missed. Forbes. Retrieved from https://www.forbes.com/sites/danroth/2018/02/11/2018-volkswagen-beetle-review-you-wont-be-missed/#2fe749b31853
Taylor. M. (2018, March 14). Shock At Volkswagen As Skoda Upsets Audi’s Profit-Margin Dominance. Forbes. Retrieved from https://www.forbes.com/sites/michaeltaylor/2018/03/14/shock-at-volkswagen-as-skoda-upsets-audis-profit-margin-dominance/#351515ed5e9e
Volkswagen (2017). Annual Report. Retrieved from https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/2018/volkswagen/en/Y_2017_e.pdf
Volkswagen AG. (2018). Audi Group posts robust financial figures after challenging first half of 2017. Volkswagen. Retrieved from https://www.volkswagenag.com/en/news/2017/07/Audi_H1_2017.html
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