Hoovey689

iTrader: (16)

How Volkswagen is run like no other car company

Volkswagen is run very differently than every other automaker. Actually, its corporate structure looks more like General Motors did from 1920 to 1970. In other words, VW now looks like the GM that was once the largest and most profitable corporation in the world.

VW is not in any danger of having other automakers copying its corporate structure. Most are unaware of VW's modus operandi, and besides, by traditional business school metrics, VW looks like a productivity basket case.

Any efficiency expert would tell you that VW is too vertically integrated, has too much overlap and duplication, and has way too many brands. VW, meanwhile, keeps growing bigger, stronger and more profitable.

The give-away that Volkswagen Group is run differently from every other car company lies with the fact that it employs a staggering 549,300 people globally. Fortune magazine lists it as the eighth largest employer in the world, behind giants such as Walmart and the Chinese post office. VW has almost as many full-time employees as General Motors (213,000), Ford (164,000) and Fiat-Chrysler (197,000) put together. While those three behemoths collectively built 19 million vehicles last year, VW "only" built 8.5 million.

Efficiency experts will tell you that on an employee-per-vehicle basis, Volkswagen looks hopelessly inefficient. Financial analysts will tell you that the company woefully trails its competitors on a revenue-per-employee basis. But VW will tell you that it makes more money than any other automaker – by far.

While VW's stated goal is to become the world's largest car company by 2018, it's already there if you measure it by revenue and profits. Its revenue of $200 billion is greater than every other OEM. Last year's operating profit of $14 billion is the kind of performance you expect from Big Oil companies, not automakers.

How can this be possible? How can VW look so uncompetitive from a productivity standpoint, yet out-earn all of its competitors?

Ah, that's the magic of VW's corporate structure. While business schools teach future MBAs that centralized operations can cut cost by eliminating overlapping work and duplication, VW maintains strongly decentralized operations with lots of overlap. While business schools preach the benefits of outsourcing to cut cost, VW is very vertically integrated.

Anytime a car company buys a component from a supplier, that supplier has to charge a profit. If an automaker can make those components in-house, it gets to keep that profit. VW is building a lot of components in-house.

If an automaker truly wants to dominate the market, it has to accept a certain amount of overlap and duplication. It just goes with the territory. To dominate you need multiple brands, and VW has more than anyone else, which admittedly overlap at the edges. But to VW they are more than just brands.

All of VW's brands (VW, Audi, Seat, Skoda, Bentley, Lamborghini, Ducati, Porsche, Bugatti, MAN, Scania, and VW Commercial) are treated as stand-alone companies. They have their own boards of directors, their own profit & loss statements, and their own annual reports. They even have their own separate design, engineering and manufacturing facilities. Yes, they do share some platforms and powertrains and purchasing, but other than that they're on their own.

Back when GM was great, it too was a holding company that owned nine stand-alone car companies (Chevrolet, Pontiac, Buick, Cadillac, Oldsmobile, GMC, Opel, Vauxhall, Holden). In the 1960s GM had over 700,000 employees, was very vertically integrated, and was the most profitable corporation in the world.

GM's vaunted president and chairman, Alfred Sloan, who led the company from 1923 to 1956, always fought against centralized operations. He kept GM very decentralized until the day he retired. Then the MBAs got ahold of it. In the 1960s they started implementing "efficiencies" and "synergies" and it's been downhill ever since. Their top-down, command-and-control system of management simply choked the company. It still does.

Meanwhile, VW is operating right out of the Sloan handbook. And its corporate structure gives it an enormous competitive advantage. No matter how much VW's competitors try to rationalize, cut cost, outsource, or partner up with one another, they're never going to overcome VW's advantage. I wonder how many of VW's competitors are even aware of what they're up against.

http://www.autoblog.com/2012/12/06/h...r-car-company/

spwolf

Interestingly enough, Toyota builds a lot more components "in house" than VW... that is if you consider all of the Toyota keiretsu companies.

TRDFantasy

Modern MBAs and the schools that teach them ... they are the cause of many problems in the world today.

Indeed, that is correct. Also something to keep in mind is that VW is chasing volume, which increases revenue and what not, while Toyota is focused on quality not volume.

Hoovey689

iTrader: (16)

which is the correct way to go about things. Look how well the former worked out for GM

Sulu

Quote:

Originally Posted by Hoovey2411

Anytime a car company buys a component from a supplier, that supplier has to charge a profit. If an automaker can make those components in-house, it gets to keep that profit. VW is building a lot of components in-house.

Quote:

Originally Posted by spwolf

Interestingly enough, Toyota builds a lot more components "in house" than VW... that is if you consider all of the Toyota keiretsu companies.

The Detroit Three auto manufacturers used to be organized in a similar manner – very vertically integrated – with components produced in-house by company-owned parts companies. They started shedding their in-house parts companies in the late 1990s and into the early part of this century.

The problem is, these parts companies did not do so well on their own, with a number going through bankruptcy protection.

mmarshall

Good. I often don't agree with the constant push in the auto industry to just keep cutting more and more jobs, even with increasing automation and robot-assembly. Automakers are in buisness, ultimately, to sell cars and make money. Yes, company employes do add to expenses, but a jobless autoworker can't buy or lease a new vehicle...he or she has got to have a job, pension, or other income. The more employees work for auto companies, the more they will be in a position to buy the company's products and keep the sales/lease figures up.

caddyowner

My dad worked for a GM component division (New Departure Hyatt bearings). Component divisions in a heavily vertically integrated automaker have a built-in market and require little sales effort. Transfer pricing is optimized (some would say manipulated) for the benefit of the parent company. GM received a lot of federal scrutiny for improper transfer pricing, especially given the bloated costs in the component divisions. MBAs predicted that there would be greater value from spinning off / selling component divisions, opening up component competition for lower prices, and ridding the parent company of high wages, retirement costs, & healthcare costs.

mmarshall

Slightly off-topic, maybe, but, IMO, one thing odd about the way GM reorganized was the way that the GMC Truck division was retained, in spite of the fact that virtually all of its products are very closely-rebadged versions of Chevy trucks/SUVs with slightly more equipment and trim on them. Even with only four American divisions left, GM essentially uses two of them (Chevy and GMC) to sell the same products. GM would have done better, IMO, to have done away with GMC trucks, kept Pontiac, and sold Pontiac-specific products through that division (GTO, G8, Solstice, etc....) that were unavailable as similiar or rebadged Chevys. And even with a new Camaro on the same F-Body platform, a revived Pontiac Firebird/Trans-Am would probably also have a market with enthusiasts.

Hoovey689

iTrader: (16)

I hear this and I think of the Delphi fiasco lol

bitkahuna

iTrader: (20)

i do agree with this. mba-thinking is too often about quick 'leverage' (outsource, churn and burn staff), and quick short term roi, and not about building a company to last.

that's a recent (good) change for toyota, which as you know went through a long spell before that of focusing on volume, and lost sight of quality. fortunately they pulled out of the tail spin.

maybe so, but auto makers won't automatically survive hiring people even if all of them bought the company's vehicles.

the vw story here is that it's chosen to use fewer suppliers and do more things in house. the 'mba-think' is that outsourcing is better because suppliers have to compete for the business, can be negotiated with, will focus on cost control better without the protection of the big auto corporate mother ship, and can innovate without being bound up in the automaker's culture. the reality is that if the automaker negotiates too aggressively, corners will inevitably be cut by the supplier, and the supplier won't have resources to innovate or maybe even survive.

both models (in source, out source) can work, and both models can fail. but any management that declares one is always better than the other, is foolish.

mmarshall

I understand your point (and agree with some of it), but short-term profits (and, in some cases, even longer-term ones) derived from laying off employees won't do much good if, in the long-term, sales go down because people don't have the money for new vehicles. Not only that, but can an auto-company realistically expect laid-off workers to reward them in the future (if they DO eventually find work or income somewhere else) by coming back and purchasing or leasing another new vehicle from that same company? Possible..........but I wouldn't bet on it.

bitkahuna

iTrader: (20)

the number of workers at an automaker is a relatively insignificant percentage of the number of vehicles a company like vw sells. plus, seems to me that laid off 'big 3' automakers still buy the same big 3 brands anyway! heck they bought 'em even when they were clearly junk.

spwolf

yeah but problem is that VW uses suppliers a lot :-).
So I dont understand what are they talking about at all....

If anything, it could be completely opposite of that - they use suppliers a lot more than asian companies like Toyota and American companies who have their own.

Sulu

Exactly what I was thinking of.

The principles behind attaining and maintaining development of high-quality product are well-known (within the quality industry) and well-accepted by Japanese manufacturers (not just auto manufacturers) but not as well-accepted in North America, despite the fact that the principles were developed by Americans.

The core principle is that you should shop for quality, not low prices. Select suppliers based upon their ability to design, develop and produce high-quality product, not for suppliers that can provide at the lowest cost. Once selected, do not select other suppliers and do not have chosen suppliers compete with each other to see which can produce at the lowest cost. Nurture a long-term partnership with suppliers in order to work with them to develop product that meet the quality needs of the buyer; work with suppliers and do not constantly shift from one to another trying to find the lowest cost.

The Japanese transplants in North America have been better known for good relations with suppliers than the Detroit Three. Ford's recent large number of recalls on the new Escape and Fusion (engines and now headlights) may be evidence that Detroit still has not grasped the quality principles.

These quality principles do seem to run counter to the MBA-think described in this thread. You get what you pay for. I think that works for employees also: treat them with respect as you would a trusted supplier otherwise you may not get quality you hope for or, worse yet, they sabotage your plans.

Laid off Detroit Three workers may be continuing to buy cars made by their former employers because they may be continuing to get employee discounts.

mmarshall

Seems like that's part of the gist of this article, though.....VW has over 500,000 employees worldwide. Yes, it may actually sell more vehicles than that, but that is still a LOT of employees by today's standards. Of course, it still probably doesn't compare to the GM payroll before the days of automated assembly-lines and robots.


Well, amost nothing can pry Ford F-150, Chevy Silverado or Dodge Ram owners away from their trucks (or from similiar new ones), but the American full-size truck market, in some ways, is an oddity. Most of the atto industry, foreign and domestic, is not composed of such die-hards.

And, die-hard or not, one still has to have money (or credit) to get a new vehicle. That is much more difficult, of course, without a job or income.