Tag: Volkswagen

OM in the News: The Beetle’s Life Cycle

All products are born, grow, mature, and eventually decline (see Figure 2.5 on product life cycle). So it should come as no shock that even the venerable Volkswagen Beetle is set to become a thing of the past. VW just announced that it will end production of the vehicle in 2019, reports The New York Times (Sept. 15, 2018). Sales of the model by the German carmaker’s U.S. unit, the only division still turning out Beetles, had declined sharply in recent years. VW is ending production of the Beetle 7 decades after the car was first designed. The original Beetle was designed for Hitler in the 1930s.

The car’s simple design and air-cooled engine eliminated the need for a more complicated water-cooled system and helped make it a postwar hit. Despite the Beetle’s connection to Hitler, it became a symbol of ’60s counterculture and the best-selling import of the era in the U.S. For the Woodstock generation, driving a Beetle or its larger cousin, the VW van, was a form of protest against materialism and the gas guzzlers churned out by the big American carmakers.

By the 1970s, though, the Beetle was showing its age. It was slow, and its heating system barely worked. Volkswagen also had trouble adapting the 1930s technology to increasingly strict pollution standards. The New Beetle, which was introduced in 1997, was meant to tap into nostalgia for its predecessor. The two cars had little in common mechanically. Beneath its Beetle-like exterior, the New Beetle was essentially a Volkswagen Golf. But the car was a hit in the U.S. Although about 1.2 million New Beetles were sold from the product’s introduction through 2010, by last year, annual sales had slipped to just 60,000.

VW was careful not to rule out reviving the model in the future. “Never say never,” said the CEO for VW-America.

Classroom discussion questions:

  1. Name a few products that just don’t seem to ever die.
  2. Name a product for each of the four life cycle stages.

OM in the News: VW’s Strategy Switch

“As the world’s largest automaker, Volkswagen in some ways better resembles a country than a mere corporation,” writes Businessweek (April 2, 2018). At more than 100 factories worldwide, the company’s 12 brands make 355 models in millions of color and trim combinations, employing more than 600,000 people who generate $284 billion in revenue.

It’s hard to imagine that such a robust firm could ever be at risk of collapse, as it was less than 3 years ago, when VW was consumed by one of the largest scandals in automotive history. The systematic effort to cheat on emissions tests—employees wrote software that made diesel cars appear cleaner than they were—brought the company to its knees.

And yet today—$30 billion in compensation and repair costs and 11 million affected vehicles later—VW is comfortably defending its global sales crown from a challenge by Toyota. Consumers’ willingness to forgive VW is remarkable, given the enormity of its wrongdoing: Scientists at the MIT estimate the extra pollution generated  by its rigged cars will contribute to more than 1,200 premature deaths. (VW was also fortunate that the vast majority of the affected cars were sold in Europe, where emission rules are less stringent than in the U.S. Germany and the EU ruled that VW could simply modify the 8 million polluting vehicles.)

Emboldened by this unexpectedly rapid rehabilitation, VW late last year embarked on by far the largest program of electrification in the global car industry, pledging to spend $25 billion to develop battery-powered or hybrid variants of every one of its models by 2030. The goal is to make EVs cheap and commonplace, inspired by its 1960s Beetle. From next year, the company plans to release a new EV or hybrid model every month.

The diesel crisis may ironically prove to have been a good thing: a trauma that forced VW to ask hard questions about its operations and strategy and what a carmaker will need to look like to survive the 21st century.

Classroom discussion questions:

  1. What factors will impede the new VW strategy?
  2. Examine each of the 10 OM decisions. How they will be impacted by an EV strategy?

 

Good OM Reading: Faster, Higher, Farther–The Volkswagen Scandal

Two years ago, Volkswagen proudly reached its goal of surpassing Toyota as the world’s largest automaker. But in Fall 2015, the EPA disclosed that VW had installed software in 11 million cars that deceived emissions-testing mechanisms. By early 2017, VW had settled with U.S. regulators and car owners for $22 billion, with additional lawsuits still looming. In Faster, Higher, Farther, New York Times reporter Jack Ewing details the conspiracy. He describes VW’s rise from “the people’s car” during the Nazi era to one of Germany’s most prestigious and important global brands, touted for being “green.” The first half of the book is the story of VW, the legendary creation of the Beetle by the Nazis, and the car’s role as a counterculture icon during the 1960s.

Ewing then portrays VW chairman Ferdinand Piëch and CEO Martin Winterkorn. The author argues that the corporate culture they fostered drove employees, working feverishly in pursuit of impossible sales targets, to illegal methods. Within a year of taking over, Winterkorn had announced a plan for VW to attain “world domination.” His diesel fuel and a “clean diesel” marketing campaign became vital components of this strategy. Although diesel leads to fuel efficiency, it also leads to high toxic emissions. Unable to build cars that could meet emissions standards honestly, engineers were left with no choice but to cheat. VW then compounded the fraud by spending millions marketing this clean diesel.

In 2013, the lie was first exposed by a handful of student researchers on a shoestring budget at West Virginia University who tested the fuel emissions of a diesel Passat, a diesel Jetta and a diesel BMW. The vehicles passed EPA standards when tested in a controlled lab-setting. But when the cars were tested in a non-lab setting, the Passat and Jetta exhibited nitrogen oxide emissions that were off the charts. As we know, this led eventually to the guilty plea to criminal charges in a landmark Department of Justice case.

In dealing with ethics of OM, here is a global company whose deceit half destroyed it–and the story is not finished.

OM in the News: Toyota’s New Modular Design

toyotaToyota just announced a revamped manufacturing process—built on sharing components among vehicles—that the world’s best-selling auto maker says will produce half its vehicles by 2020 and slash costs. But its unveiling follows a path blazed in recent years by German rival VW—a reversal for the Japanese pioneer, whose production system was for decades seen as the gold standard, giving the world such manufacturing concepts as “just-in-time inventory” and “continuous improvement.”

As Toyota developed its new manufacturing process, it found itself chasing Volkswagen, which in 2012 launched vehicles built on its own new global manufacturing platform, reports The Wall Street Journal (March 27, 2015). VW’s effort to lower the huge development costs for 9 car brands produced a building-block system that allows it to develop platforms on which multiple brands can be built in the same factory and often on the same production line, a savings over designs that often required one factory per model. “It used to be: one plant, one line, one model,” said VW’s CEO. The system sets specifications for the basic underpinning of a vehicle and for attaching components from brakes and powertrains to engines.

The effort will save Toyota 30% of the upfront development costs of a new vehicle. Its so-called MQB platform allows multiple models, body styles and brands to be built in the same factory, reducing costs in several ways. The introduction of smaller manufacturing lines, for instance, is expected to reduce initial plant investment by approximately 40%. And the company’s new production process is built on much more expansive component sharing than its existing platform-sharing strategies. Toyota said it plans to increase the use of same or similar components, regardless of vehicle size and styles, allowing it to order parts in bulk and save costs through greater economies of scale.

Classroom discussion questions:

1. Why is the modular design so important?

2. What is the MQB platform?

 

OM in the News: Germany Exports Jobs Training to the US

Germany’s transplant-factories, like the sprawling VW complex in Chattanooga, aren’t just cranking out cars, machinery and chemicals. They are also bringing, writes The Wall Street Journal (June 14, 2012), a German training system that could help narrow America’s skilled labor gap. VW, which will graduate its first class of U.S. apprentices next year, is one of dozens of companies introducing training that combine German-style apprenticeships and vocational schooling.

These programs are winning adherents as manufacturers grapple with a paradox: Though unemployment remains stuck above 8%, companies can’t find enough machinists, robotics specialists and other highly skilled workers to maintain their factory floors. An estimated 600,000 skilled, middle-class manufacturing jobs remain unfilled nationwide, even as millions of Americans search for work.

“In the U.S. we’ve evolved to the point where we think the only thing people should strive for is a four-year college education, and factory work is seen as dirty, dangerous and repetitive,” says the director of the Aspen Institute’s Manufacturing and Society program. “In Germany, the work that is done on the factory floor and prepared by its vocational education system is highly valued.”

In Germany, 2/3 of the country’s workers are trained through partnerships among companies, technical schools and trade guilds. Last year, German companies took on and trained nearly 600,000 paid apprentices. In the U.S., such close cooperation doesn’t often exist. One stumbling block has been companies’ fear of spending on training, only to see apprentices go elsewhere. Siemens spends approximately $165,000 an apprentice in its new three-year mechatronics training program in Charlotte.  VW warns that without training its own skilled workers, it will struggle to expand: As it ramped up production this year, it needed a nationwide advertising campaign to fill 100 of the more specialized new jobs at the Chattanooga plant.

Discussion questions:

1. Why is VW willing to invest so much money in an apprentice?

2. Why are these programs more popular in Germany than in the US?