Volkswagen Do Brasil: Driving Strategy with the Balanced Scorecard
Deidra Zablocki
MGMT 561-01 FA2012
T/R Cohort
“Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard”
I. Key Problem
Volkswagen entered the Brazilian auto manufacturing market in 1953 and by 1969 held a 61% share. Through some tough economic times in the late ‘80s and early ‘90s, the overall auto market in Brazil declined 20%. In 1991, Volkswagen, Ford, General Motors and Fiat dominated the Brazilian market with a combined 97% share. However, by 2008, other companies from France, Japan, Korea and China entered the Brazilian market. At this point, the top 4 only made up 77% of the auto manufacturing market; the 20% decline coming mainly from Volkswagen. Looking at the time period from 1994 – 2008, Exhibit 2A shows VWB’s market share peaks around 1996/1997 with a 35% share of the car and light vehicle market and by 2008, their share of the market has declined to roughly 22%. In 2003, in the face of consistent year over year declines in market share and losses at the Company, VWB attempted to change their strategy. New CEO, Thomas Schmall noted the appreciation of the Brazilian currency together with increases in labor and raw material costs on top of mounting international competition meant VWB could not raise prices. In turn, margins could not cover excess capacity costs. And in 2006, in spite of changes in strategy, VWB saw their eighth consecutive year of losses (two key performance indicators also fell below management expectations).
What was the new CEO to do? He still saw substantial value in the Brazilian auto market which had 6.9 inhabitants per vehicle, significantly higher than the US and Germany (roughly 2:1), South Korea (3:1) and Mexico (4:1). Schmall felt that by 2015 Brazil would catch up to these other markets, however how was VWB going to capture this value? VWB needed to create a restructuring plan in order to turn profits, increase market share and take control of the value that Schmall felt was available.
II.
MGMT 561-01 FA2012
T/R Cohort
“Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard”
I. Key Problem
Volkswagen entered the Brazilian auto manufacturing market in 1953 and by 1969 held a 61% share. Through some tough economic times in the late ‘80s and early ‘90s, the overall auto market in Brazil declined 20%. In 1991, Volkswagen, Ford, General Motors and Fiat dominated the Brazilian market with a combined 97% share. However, by 2008, other companies from France, Japan, Korea and China entered the Brazilian market. At this point, the top 4 only made up 77% of the auto manufacturing market; the 20% decline coming mainly from Volkswagen. Looking at the time period from 1994 – 2008, Exhibit 2A shows VWB’s market share peaks around 1996/1997 with a 35% share of the car and light vehicle market and by 2008, their share of the market has declined to roughly 22%. In 2003, in the face of consistent year over year declines in market share and losses at the Company, VWB attempted to change their strategy. New CEO, Thomas Schmall noted the appreciation of the Brazilian currency together with increases in labor and raw material costs on top of mounting international competition meant VWB could not raise prices. In turn, margins could not cover excess capacity costs. And in 2006, in spite of changes in strategy, VWB saw their eighth consecutive year of losses (two key performance indicators also fell below management expectations).
What was the new CEO to do? He still saw substantial value in the Brazilian auto market which had 6.9 inhabitants per vehicle, significantly higher than the US and Germany (roughly 2:1), South Korea (3:1) and Mexico (4:1). Schmall felt that by 2015 Brazil would catch up to these other markets, however how was VWB going to capture this value? VWB needed to create a restructuring plan in order to turn profits, increase market share and take control of the value that Schmall felt was available.
II.