Volks & BMW

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VOLKSWAGEN GROUP THE GROUP: The Volkswagen Group with its headquarters in Wolfsburg is one of the world’s leading automobile manufacturers and the largest carmaker in Europe. In 2009, the Group increased the number of vehicles delivered to customers to 6.336 million (2008: 6.257 million), corresponding to a 11.3 percent share of the world passenger car market. In Western Europe, the largest car market in the world, just over one in five new cars (20.9 percent) comes from the Volkswagen Group. Group sales came in 2009 to 105.2 billion euros (2008: 113.8 billion). Profit after tax in the 2009 financial year amounted to 0.9 billion euros (2008: 4.69 billion). The Group is made up of nine brands from seven European countries: Volkswagen, Audi, SEAT, Škoda, Volkswagen Commercial Vehicles, Bentley, Bugatti, Lamborghini and Scania. Each brand has its own character and operates as an independent entity on the market. The product range extends from low- consumption small cars to luxury class vehicles. In the commercial vehicle sector, the product offering spans pick ups, busses and heavy trucks. The Group operates 61 production plants in fifteen European countries and a further six countries in the Americas, Asia and Africa. Around the world, nearly 370,000 employees produce about 26,000 vehicles or are involved in vehicle-related services each working day. The Volkswagen Group sells its vehicles in more than 153 countries. BRANDS:

Transcript of Volks & BMW

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VOLKSWAGEN GROUP

THE GROUP:

The Volkswagen Group with its headquarters in Wolfsburg is one of the world’s leading automobile manufacturers and the largest carmaker in Europe. In 2009, the Group increased the number of vehicles delivered to customers to 6.336 million (2008: 6.257 million), corresponding to a 11.3 percent share of the world passenger car market.

In Western Europe, the largest car market in the world, just over one in five new cars (20.9 percent) comes from the Volkswagen Group. Group sales came in 2009 to 105.2 billion euros (2008: 113.8 billion). Profit after tax in the 2009 financial year amounted to 0.9 billion euros (2008: 4.69 billion).

The Group is made up of nine brands from seven European countries: Volkswagen, Audi, SEAT, Škoda, Volkswagen Commercial Vehicles, Bentley, Bugatti, Lamborghini and Scania.

Each brand has its own character and operates as an independent entity on the market. The product range extends from low-consumption small cars to luxury class vehicles. In the commercial vehicle sector, the product offering spans pick ups, busses and heavy trucks.

The Group operates 61 production plants in fifteen European countries and a further six countries in the Americas, Asia and Africa. Around the world, nearly 370,000 employees produce about 26,000 vehicles or are involved in vehicle-related services each working day. The Volkswagen Group sells its vehicles in more than 153 countries.

BRANDS:

Our activities may focus on the automobile, but the Volkswagen Group is far more than just a carmaker. A wide variety of mobility-related services round off our portfolio.

Uniting a wide variety of brands and companies with all their individual characteristics and focuses under one umbrella is a great challenge, especially as the Volkswagen Group is committed to maintaining their individual identities. But this is the only way all the brands and companies can make their own contributions to the common value stream and form cornerstones of the Group.

AUDI

PORSCHE

VOLKSWAGEN

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SKODA

BENTLEY

SEAT

BUGATTI

SCANIA

LAMBORGHINI

R&D

Shaping the future is a fascinating challenge for industry and society.

Our automotive future is formed by social conditions and trends. It is our task to anticipate the future needs of our customers and to convert these needs into innovative technologies.

The technological challenges of the future can only be mastered by intensive research and networked cooperation both inside and outside the company. Our mission is to continue meeting our customers’ wishes for individual and affordable mobility through sustainable technologies. We work together with our partners to achieve this goal.

Group Research has its headquarters in Wolfsburg and researches for all Group brands. International trendscouting and technology scouting form part of our strategic orientation and we also operate from research bases in the US, Japanese and Chinese markets.

It is the goal of the Group to offer attractive, safe and environmentally sound vehicles which are competitive on an increasingly tough market and which set world standards in their respective classes.

Preparing for global challenges

Today more than ever, global challenges such as climate change and scarce resources demand sustainable solutions from industry and society that go beyond the usual boundaries of sectors and segments. As a globally active Group, Volkswagen is addressing these challenges with a commitment to using them as an opportunity to develop convincing solutions and use the findings in its strategic positioning. For many years now the Volkswagen Group has been employing various methods to envisage the future and thereby enhance its competitive position. These include early warning systems, trend research and future research, as well as drawing up scenarios and forecasts. The timely identification of impending challenges and the assessment of risks and opportunities provide the basis for strategic decision-making.

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Strategy "18plus"

The Volkswagen Group has charted a clear course with our “18plus” strategy, building consistently on the company’s strengths and setting new goals. The company is being equipped to face the future: attractive new models and vehicle segments, as well as innovative environmental technologies point the way forward for increasingly economical internal combustion engines and gearboxes, for hybrid and electric vehicles.

Structures and tools of a sustainable strategy.

In 2006 Volkswagen set up a CSR and Sustainability Coordination office, which is primarily responsible for the strategic direction and optimisation of CSR and sustainability managment across the Volkswagen Group. To achive this, the office fosters networks linking internal divisions and strengthens the exchange of information between specialist departments.

Compliance

For a globally active company, value creation, sustainability and reputation are now more than ever dependent on the consistency with which everyone involved observes legal requirements, agreed guidelines, and social and ecological minimum standards.In line with the provisions of the German Corporate Governance Code, the Board of Management ensures the observance of legal requirements and internal corporate guidelines, working to achieve compliance throughout the Group. In 2008 we established a central Compliance Office, which in currently setting up a Group-wide compliance organisation.

Sustainability in supplier relations

In 2006 the Volkswagen Group drew up a “Sustainability in Supplier Relations” scheme in conjunction with Oldenburg University and the co- determination bodies within the Volkswagen Group and has since gradually introduced this approach into corporate structures across the Group, as well as into production-related purchasing processes. In 2008, these standards were extended to general purchasing.

Expanding Stakeholder involvement

As a good “corporate citizen” we are committed to an ongoing dialogue with our stakeholders. Further key reference points for our corporate strategy are the Convention of the Global Compact, the International Labour Organisation (ILO) and the OECD Guidelines for Multinational Enterprises. We are actively involved in the World Business Council for Sustainable Development (WBCSD), in CSR Europe and in econsense, the Forum for Sustainable Development of German Business.

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ENVIRONMENT

Climate and energy: More efficiency

Today more than ever, global challenges such as climate change and scarce resources demand sustainable solutions from industry and society that go beyond the usual boundaries of sectors and segments. Biodiversity, food supplies and the availability of drinking water, for example, are all inseparably linked with the climate. So it is essential to limit the changes in our climate if we are to avoid serious consequences. According to the analyses drawn up by the UN’s Intergovernmental Panel on Climate Change (IPCC), by 2050 greenhouse gas emissions need to be cut worldwide by at least 50 percent compared to 1990 levels if global warming is to be restricted to two degrees Celsius in the long term.

Product

On the product side our aim is to lead the field in terms of fuel consumption in every class of vehicle. This has been the case for many years now. Towards the end of the 1990s, for example, we brought the Audi A2 3L and the Lupo 3L to market – the first two models to feature average fuel consumption of less than three litres per 100km.

Production

The Volkswagen Group’s environmental efforts are not restricted to bringing environmentally compatible products to market that were built using environmentally compatible processes. At all its plants, the Group is engaged in an ongoing process of identifying and exploiting new potential means of protecting the environment. Saving energy is a high priority topic in this respect, a fact explained by a glance at the energy costs incurred in a single year: in 2007 these amounted to approximately EUR 490 million for the 13 Volkswagen Group plants in Europe that house vehicle production operations.

Mobility

The ideal mobility concept involves not only environmentally compatible vehicles with low fuel consumption but also the networking of intelligent vehicles with the infrastructure – with intelligent traffic lights or traffic management centres, for example.

Recycling

End-of-life vehicles are a source of raw materials. That might sound obvious, but the full implications have only been understood relatively recently – following many years of research. Today it is possible to recycle not just 80 percent but up to 95 percent of a vehicle by weight.

CUSTOMER:

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Customer neareness is one of our core group values. It ist the interest of our customers that determine the actions of our employees and at the same time we assess all the activities of the goup on the basis of their values for our customers. For our succcess an thr development and the development of long-term customer relations it is essential for us to be thoroughly conversant with and understand the motives and needs of customers and their attitudes to our products.

Customer satisfaction and loyality

The satisfaction of our customers with the Group brands is regularly measured in a number of countries with the help of special questionnaires, though when conducting these studies we concentrate primarily on product and service quality. The results are analyzed and assessed in terms of their contribution to target achievement, and appropriate measures for improvement are then developed. In terms of satisfaction with product and service quality, the Audi and Škoda brands occupy a leading position in the core European markets when ranked against competitors.

Customer service

Our customers want to deal with people who are knowledgeable and dedicated – when they are buying a new vehicle, when they have technical queries or when a serious issue needs resolving in the workshop. With this in mind, we are consolidating the dealer network in our established markets and expanding it further in our growth markets.

Fuel-saver courses

Only roughly two thirds of a car’s fuel consumption is determined by its design or by external factors that cannot be influenced. The remaining one third can be controlled by the driver, simply through the way he uses the car and by adopting an intelligent style of driving.

HUMAN RESOURCES

Our success is based on the qualification and personal commitment of around 370,000 people who are employed by the Volkswagen Group. A company will only be able to survive in the face of international competition if it has a top team, characterised by a high level of competence, dedication, inventiveness and fitness.

Competence is created from good basic training and a life-long willingness to learn. Dedication ideally means entrepreneurial thinking and actions, not only by management staff. Active contribution of ideas and participation are expected of all members of staff.

The success factors are encouraged in our human resources processes and in projects.

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STRATEGY

Group Strategy 2018

The key element of our “Strategy 2018” is to position the Volkswagen Group as a global economic and environmental leader among automobile manufacturers. In 2018, the Volkswagen Group aims to be the most successful and fascinating automaker in the world. In order to achieve that, we have set ourselves four goals:

Volkswagen intends to become a world leader by using intelligent innovations and technologies, while at the same time delivering customer satisfaction and quality.

Over the long term, Volkswagen aims to increase unit sales to more than 10 million vehicles a year; it intends to capture an above-average share as the major growth markets develop.

By achieving a return on sales before tax of over 8.0%, Volkswagen will safeguard its solid financial position and ability to take action, even during difficult market periods.

Volkswagen is to become the top employer across all brands, companies and regions; it must do so in order to build a first-class team.

In order to remain on track with this, even during times of economic crisis, the Board of Management reinforced its efforts by launching the “18 plus” program. In doing so, we gave top priority to ecological relevance and the return on our vehicle projects. In this way, the Company can grow with the right products, even in economically difficult times, while at the same time controlling capital expenditure. Thanks to our environmentally oriented and steadily growing range of vehicles as well as the excellent position of the separate brands in the markets worldwide, we are able to leverage the Group’s strengths and to systematically increase our competitive advantage.

SUSTAINABILITY AND RESPOSIBILITY

Top performance

To survive in the face of competition and to achieve top performance, the Volkswagen Group needs employees who enthusiastically give their best. A good balance between demands and ability (the so-called "flow channel") is the basic precondition for optimum performance and results. For this reason, we do not want our employees to be overstretched, but also not understretched, so that they are able to deliver top performance and advance the success of our company.

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Leading by example

The management assumes a decisive role in this entire process. Our principle has to be "Lead, Demand and Promote". The Group will only be able to achieve its goals with exemplary leadership and constructive cooperation between management and workforce. This includes both targeted and continual personnel development and work organisation, which we continue to develop with the so-called "Volkswagen Way".

Active involvement

A standard survey of employees across the Group was introduced in the form of the so-called "mood barometer". The "mood barometer" gives employees the opportunity to anonymously voice their opinion and so to become actively involved in the organisation of the company. The results form the basis for continually developing our strengths and for exploiting potential that is brought to light. The high rate of participation shows that employees have positively accepted this instrument as an expression of their esteem. In this way, they make a contribution to the continued development of the company.

Social responsibility

Not only does Volkswagen's corporate culture focus on people, it also represents the sustainability of economic and social goals, "corporate social responsibility". The "Declaration on Social Rights and Industrial Relations" expresses Volkswagen's global understanding of social responsibility on the basis of minimum standards.

This includes Volkswagen's active cooperative conflict resolution between the Works Council and the company management. We created European and Global Works Councils early and without any statutory obligation. We do not cling to traditional questions of co-determination. Rather, we discuss the development of the company with our Works Council representatives. This is the way from co-determination to shared responsibility.

SUPPLY CHAIN:

When we launched our private electronic marketplace, VWsupplygroup.com, in 2001, we wanted to meet the specific requirements of our suppliers. We chose not to join the North American supplier platform, Covisint, because we found it difficult to devise an industrywide, common solution that dealt with our particular processes and the ways in which we interact with our partners. Because the goal of any business-to-business (B2B) supplier is global collaboration to create business-process transparencies and efficiencies, we knew we had a unique opportunity to get it done right.

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Today, our B2B supplier platform is the central access point to the VW Group. By providing cross-functional applications, our marketplace has become deep-seated in the business processes and core competencies of the entire VW Group. In the four years since the program began, the number of users has jumped from 400 to 55,000, supplier sites from 160 to 16,700, and applications from four to 30. To be sure, the supplier-collaboration platform is part of our daily business.

We're now looking to establish a central, internal procurement platform for dealing with all sourcing, analysis, and cross-functional activities. This initiative, called the Integrated Agent Purchasing Desk, is intended to increase employee productivity by providing the right information at the right time so users can make quick, intelligent decisions.

We're moving to a comprehensive portal strategy. Our next challenge will be to enable advanced car-product launch management along the supply chain between the B2B supplier and centralized procurement platforms.

Our goal in all of these efforts is to reduce business-process throughput, create targeted information exchange, and improve data quality. We also realized that well-planned change management is key for any initiative this size. Shoring up support from top management will definitely see these initiatives through to the end.

Based on our marketplace and portal experiences, I suggest developing a close relationship with your partners, suppliers, and customers. After all, the customers' experience is what drives innovation and business excellence for us as it does for businesses everywhere.

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BMW GROUP

COMPANY:

After World War I, BMW was forced to cease aircraft (engine) production by the terms of the Versailles Armistice Treaty. The company consequently shifted to motorcycle production in 1923 once the restrictions of the treaty started to be lifted, followed by automobiles in 1928–29.

The circular blue and white BMW logo or roundel is portrayed by BMW as the movement of an aircraft propeller, to signify the white blades cutting through the blue sky – an interpretation that BMW adopted for convenience in 1929, twelve years after the roundel was created. The emblem evolved from the circular Rapp Motorenwerke company logo, from which the BMW company grew, combined with the white and blue colors of the flag of Bavaria, reversed to produce the BMW roundel. However, the origin of the logo being based on the movement of a propeller is in dispute, according to an article recently posted by the New York Times, quoting "At the BMW Museum in Munich, Anne Schmidt-Possiwal, explained that the blue-and-white company logo did not represent a spinning propeller, but was meant to show the colors of the Free State of Bavaria."

BMW's first significant aircraft engine was the BMW IIIa inline-six liquid-cooled engine of 1918, much preferred for its high-altitude performance. With German rearmament in the 1930s, the company again began producing aircraft engines for the Luftwaffe. Among its successful World War II engine designs were the BMW 132 and BMW 801 air-cooled radial engines, and the pioneering BMW 003 axial-flow turbojet, which powered the tiny, 1944-1945-era jet-powered "emergency fighter", the Heinkel He 162 Spatz. The BMW 003 jet engine was tested in the A-1b version of the world's first jet fighter, the Messerschmitt Me 262, but BMW engines failed on takeoff, a major setback for the jet fighter program until successful testing with Junkers engines.

By 1959 the automotive division of BMW was in financial difficulties and a shareholders meeting was held to decide whether to go into liquidation or find a way of carrying on. It was decided to carry on and to try to cash in on the current economy car boom enjoyed so successfully by some of Germany's ex-aircraft manufacturers such as Messerschmitt and Heinkel. The rights to manufacture the Italian Iso Isetta were bought, the tiny cars themselves were to be powered by a modified form of BMW's own motorcycle engine. This was moderately successful and helped the company get back on its feet. The controlling majority shareholder of the BMW Aktiengesellschaft since 1959 is the Quandt family, which owns about 46% of the stock. The rest is in public float.

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In 1992, BMW acquired a large stake in California based industrial design studio DesignworksUSA, which they fully acquired in 1995. In 1994, BMW bought the British Rover Group (which at the time consisted of the Rover, Land Rover and MG brands as well as the rights to defunct brands including Austin and Morris), and owned it for six years. By 2000, Rover was making huge losses and BMW decided to sell the combine. The MG and Rover brands were sold to the Phoenix Consortium to form MG Rover, while Land Rover was taken over by Ford. BMW, meanwhile, retained the rights to build the new MINI, which was launched in 2001.

Chief designer Chris Bangle announced his departure from BMW in February 2009, after serving on the design team for nearly seventeen years. He was replaced by Adrian van Hooydonk, Bangle's former right hand man. Bangle was famously (or infamously) known for his radical designs such as the 2002 7-Series and the 2002 Z4. In July 2007, the production rights for Husqvarna Motorcycles was purchased by BMW for a reported 93 million euros. BMW Motorrad plans to continue operating Husqvarna Motorcycles as a separate enterprise. All development, sales and production activities, as well as the current workforce, have remained in place at its present location at Varese.

STRATEGY:

Identifying potential and encouraging growth. Knowing what we represent. Recognising where our strengths lie and making the best use of every opportunity. Following a clear strategy. Goals we have attained are in essence the point of departure for new challenges. This is the philosophy that inspires every individual at the BMW Group. It influences the company's structure and it plays a vital role in the decision-making process. Our corporate ethos finds its expression in the uncompromising pursuit of the superlative. The result? Outstanding brands with an unmistakable profile. Automobiles and motorcycles which fascinate people all over the world and which win legions of new admirers every day. And a degree of success which sees the BMW Group go from strength to strength.

With the three brands, BMW, MINI and Rolls-Royce Motor Cars, the BMW Group has its sights set firmly on the premium sector of the international automobile market. To achieve its aims, the company knows how to deploy its strengths with an efficiency that is unmatched in the automotive industry. The strategic objective is clearly defined: The BMW Group is the leading provider of premium products and premium services for individual mobility.

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R&D:

Since the company was founded, innovations have ranked among the BMW Group's success factors. Gain an insight into our company's fields of Research and Development and get to know people, processes and projects that are important for the ongoing visionary development of our products.

People, processes and future projects.

Connected People.

The BMW Group employees introduce themselves, describe their workplaces and show the strength of the BMW Group – its people.

From the idea to series production.

Follow the path of the automobile premium product from the idea to series production in "Portal Future".

The BMW Group is the most successful premium manufacturer in the automobile industry. One of the key prerequisites for this success was and is the permanent technological innovation leadership in automobile construction, as perceived by the customer.

Innovative concepts and technologies

Efficient Dynamics.

The BMW Group accepts its responsibility for climate protection and consistently works on technological innovations to increase energy efficiency.

Connected Drive.

Get an overview of the range of innovations that connect driver, vehicle and the outside world.

PRODUCTS:

5Series, 7Series

BRANDS:

BMW

ROLLS ROYCE

MINI

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SUSTAINABLE PRODUCTION:

Exceptional people.

The performance capability of the BMW Group's production network depends on the special commitment, identification, and know-how of its employees. In addition to future-oriented technologies and the most modern equipment, our employees are the central element in the manufacture of premium products. Systematic linking of internal and external partners as well as targeted knowledge transfer ensures both today and in the future that the customer will obtain his dream automobile by the agreed-upon delivery date and in the high quality expected of all "made by BMW Group" vehicles.

Flexible working hours.

The over 70,000 employees of the worldwide production network are united in their common enthusiasm for all of the concern's vehicles, their quest to achieve highest quality results in all working processes, and their will to make a significant contribution to the BMW Group's success now and in the future. Innovative forms of work are important factors for stimulating performance, creativity, and gratification in the workplace. The BMW Group uses over 300 successful work-schedule models. These enable the corporation to utilize its plants flexibly and react to customer as well as market demands – and at the same time, to respond to the needs of its employees.

SUSTAINABILITY MANAGEMENT:

We have set ourselves the goal of integrating sustainability throughout the entire value chain and its underlying processes – creating an added value for the company, the environment and society. Key elements of BMW Group’s sustainability management include an “environmental radar” that is regularly extended to cover additional ecological and social aspects; ongoing dialogue with stakeholders; the inclusion of sustainability criteria in all decision-making processes; and a holistic approach to the entire value chain.

The BMW Group’s basic principles form the foundation of the company’s long-term alignment. They establish, among other things, that being a good corporate citizen is an integral part of how the BMW Group defines itself as a company. Furthermore, sustainability is regarded as making a positive contribution to the company’s economic success.

According to the Dow Jones Sustainability Indexes, the BMW Group is currently the world’s most sustainable carmaker. The company was named industry leader in these important global sustainability indices for the fifth consecutive year in 2009. Numerous other ratings and awards also confirm the company’s lead role in the field of sustainability. But for the BMW Group this is

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only the beginning. It is obvious that sustainability is set to play an even bigger role in defining premium mobility of the future – from environmentally-friendly drive trains and resource-friendly production processes to new, sustainable services in the field of individual mobility. In the future, “premium” will inevitably comprise the concept of sustainability. The manufacturer with the more efficient and resource-friendly production, who offers the most visionary solutions for eco-friendly individual mobility, will have the competitive edge.

ECONOMICS:

Our corporate Strategy Number ONE is creating the best conditions for long-term value creation and sustainability. Our vision is to be the world's leading provider of premium products and premium services in the automotive industry. As we see it, this also means being a leader in the field of sustainability. From an economic point of view, issues such as compliance, anti-corruption and risk management form the backbone of corporate responsibility.

SUPPLY MANAGEMENT:

he BMW Group strongly believes that corporate sustainability can only be effective if it embraces all steps of the value chain. This is why the BMW Group not only sets the highest standards for itself, but also expects suppliers and partners to meet ecological and social standards. Sustainability criteria of this kind are integrated throughout the company’s purchasing conditions. These criteria comply with the principles of the UN Global Compact, the UN’s International Declaration on Cleaner Production and the conventions of the

International Labour Organization (ILO), to name but a few. The BMW Group’s declared goal is an efficient supply chain that adheres to the same ambitious sustainability standards all around the world and at all stages of value creation.

Sustainability as a purchasing criterion

Responsibility for supplier management lies with the BMW Group’s purchasing division. The division’s scope of responsibilities includes the selection and validation of suppliers, traditional procurement tasks, quality assurance for supplied goods and services as well as logistics – and thus the implementation of sustainability standards throughout the value chain. To prepare staff for this task, employees are made more aware of sustainability issues and undergo internal training.

Besides Central Purchasing in Munich, the BMW Group operates an international network of so-called International Purchasing Offices (IPOs) whose task it is to identify and validate local suppliers for both local production facilities and the BMW Group’s international production network. Particularly in growth markets like China or India, the IPOs assist potential local

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suppliers in building up necessary competences, including those concerning environmental and social standards. As a result, these suppliers can become productive partners in the BMW Group supplier network.

Mandatory criteria included in purchasing conditions

In spring 2003, the BMW Group established mandatory requirements for ecological and social responsibility in its national and international purchasing conditions. By signing these terms and conditions, suppliers are committing to these sustainability standards. The purchasing conditions were revised and updated – also with regard to sustainability issues – in 2009. Effective as of autumn 2009, these conditions make it mandatory for suppliers to require tier-two suppliers to adhere to the same social and ecological standards.

Stipulations in the purchasing conditions include the prohibition of child and forced labour, discrimination and bribery as well as the implementation of a suitable management system for occupational safety. Furthermore, by signing the purchasing conditions, suppliers are committing themselves to resource-saving and environmentally-responsible production. On request, key suppliers have to provide information about their energy and water consumption as well as production-related CO2 emissions, waste, sewage and solvents used in the production of components for the BMW Group. Suppliers are required to set up a fully functional environmental management system certified in accordance with the established standards ISO 14001, EMAS or equivalent certificates.

The BMW Group is in ongoing dialogue with domestic and foreign suppliers. Environmental and social standards form important guidelines for this cooperation.

Evaluating potential partners

The BMW Group considers sustainability standards from the very beginning when evaluating potential suppliers. This initial analysis is based on a sustainability questionnaire which has to be completed by any prospective supplier. Those who provide a detailed self-assessment and do not violate any of the BMW Group’s exclusion criteria, such as child labour, then move on to the next stage in the selection process.

Improving sustainability at existing suppliers

Frequent quality audits at existing suppliers also test environmental and social standards. In the event that an established supplier is commissioned to produce a new component, the BMW Group’s Quality Management is required to carry out a process audit for both quality and sustainability aspects. Direct suppliers have to prove the existence of a fully functional tier-two supplier management. In problematic cases, there may also be unscheduled visits.

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The BMW Group is resolved to monitor implementation of the ecological and social requirements stipulated in its purchasing conditions more closely. In 2008, the existing sustainability questionnaire was revised and an assessment matrix detailing exclusion criteria for environmental protection, social standards and product development practices adopted. The questionnaire now comprises 29 questions on social and ecological responsibility. In a first step, a total of 1,046 suppliers, representing approximately 80 % of the BMW Group’s procurement volume, were questioned about their environmental practices in early summer 2007.

In the future, the updated questionnaire will be applied as a key criterion in the supplier selection process and as an assessment tool for existing suppliers. From the end of 2009 on, findings will be included in the BMW Group’s supplier database to allow the company to record, evaluate and compare all suppliers’ sustainability performance faster and more systematically in the future.

If its sustainability requirements are violated, the BMW Group works with the supplier in question to draft a detailed action plan. This includes an escalation schedule which, in extreme cases, may culminate in the termination of the business relationship. So far, however, the BMW Group has never had to exclude a direct supplier due to violations of social and environmental standards. Nevertheless, it is impossible to completely exclude the possibility of violations at tier-two suppliers.

Holistic approach to the value chain

The BMW Group not only complies with ecological and social standards but also initiates lasting improvements in the eco-balance throughout the entire value chain. A project newly launched in 2008 aims to reduce the extent to which parts are sourced from many different suppliers and the environmental impact this has. As a result, certain electronic control units are no longer transported back and forth between countries, or even continents, before completion, but are produced at the most suitable location according to the principle of “concentration of value added”. According to the calculations of BMW Group experts, this move could reduce energy and transport costs by up to 65 %.

Pulling together

The BMW Group not only challenges its suppliers but also supports them as much as possible. In today’s difficult market climate, the number of suppliers in financial difficulties is rising. The BMW Group uses its risk management system to try to identify companies at risk of insolvency in time to help them by providing advice or other assistance.

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PRODUCT:

To assure its long-term success and future viability, the BMW Group must assume full responsibility for its products. That is why, to us, product responsibility means providing answers to questions about the quality, impact and future of our own products.

The focus is on developing individual mobility in a way that improves safety, conserves resources and protects the climate. The company is actively seeking groundbreaking new solutions that go beyond anything seen so far and will help improve products throughout their entire life cycle. A carmaker with such a comprehensive understanding of its product responsibility – considering it in every aspect of its activities and implementing it consistently – is also promoting the concept of premium mobility. It is a given for the BMW Group that sustainability will play a much greater role in defining premium in the future.

Responsibility throughout the vehicle’s lifetime

For the BMW Group, responsibility starts with developing vehicles that are fuel-efficient and safe for both the driver and other road users. The company’s comprehensive approach embraces environmentally and resource-friendly development and production processes and a wide range of high-quality customer services as well as recycling concepts which guarantee that BMW Group vehicles impact the environment as little as possible, including at the end of their useful life.

In the area of product responsibility, we have defined the following six core areas for action:

- Reducing fuel consumption and CO2 emissions:

We are already implementing fuel-efficiency innovations that significantly reduce the fuel consumption of today’s cars. Our engineers are constantly working on taking these technologies to the next level.

- Developing alternative drive concepts:

We are vigorously pursuing the hybridisation of the drive train as well as the development of electric cars and hydrogen mobility solutions.

- Refining traffic management concepts:

Our mobility experts are working on mobility projects aimed at improving traffic flow. Together with infrastructure partners, they are looking at ways to improve the flow of traffic in urban centres, thereby minimising environmental impact.

- Active and passive safety:

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We apply a comprehensive vehicle safety concept that involves improving active safety to prevent accidents and passive safety to minimise the consequences of accidents.

- Product recycling:

We also assume responsibility for our vehicles at the end of their lifetime. Early in development, we ensure that 95 % of vehicle components can be recycled later on.

- Customer satisfaction:

Ultimately, it all comes down to our customers - since it is they who decide the company’s success. The customer is at the heart of everything we do and so our standards are: top quality and reliability of vehicles, as well as maximum customer service satisfaction

PEOPLE:

Companies are made by people. The more people are encouraged to draw on their individual competencies, ideas and capabilities, the better the company performs as a whole. In turn, an efficient, staff-oriented company offers attractive workplaces for motivated, talented employees.

As part of our corporate strategy Number ONE we stated in our basic principles that employees are our biggest success factor and that is why human resources decisions are among the key decisions we take. The basic principles lay foundation for the present advancement of the company’s human resources and social policies and thus of the entire field of personnel work. These policies are also based on other guidelines including the requirements detailed in the United Nations Global Compact, the ILO, the OECD, the ICC Business Charter for Sustainable Development as well as the BMW Group’s Joint Declaration on Human Rights and Working Conditions.

SOCIAL RESPONSIBILITY:

Social commitment focuses on road safety, education and health

We are involved in a multitude of initiatives to promote maximum road safety. We are committed not only to the safety of our own customers but to that of all road users. Education initiatives are a further focus of our social commitment. With these, we help to impart skills which are essential to the company itself and to society at large. The BMW Group is also committed to the promotion of research and teaching, especially in technical subjects. It has,

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for instance, facilitated the establishment of the "TUM Institute for Advanced Study" at the Technical University (TU) of Munich and has been supporting the endowed chair in lighting engineering at the Technical University of Darmstadt since 2008. Besides technical expertise, the BMW Group also values social skills and intercultural awareness and experience - skills which are indispensable to the success of a global company. Another focus is the challenge of HIV / Aids - since this affects both BMW Group employees and their communities. The company has developed programmes for disease prevention and education in a number of locations. Once they had proven successful, these programmes were transferred to several communities.

Global support for a multitude of social projects: One focus of the BMW Group’s activities is on educational activities for children and teenagers.

Local commitment

In addition to its global concept and local adaptations, the BMW Group also supports the communities in which it operates. As a good corporate citizen, the company puts its competences and capacities to the service of sustaining and enhancing these communities. This helps create an environment where society and company can rely on each other and face challenges together.

Cultural initiatives

We also encourage the exchange of ideas and intercultural understanding through a variety of cultural initiatives. For more than 30 years, cultural engagement has been an integral part of the BMW Group's corporate communications activities. We currently support well over a hundred cultural projects in Europe, Asia, North and Central America, Australia and Africa. It is primarily drawn to formats from architecture and design, music and contemporary art which have an affinity with the competence and positioning of its brands.

Foundations provide impetus for solving social problems

Our two foundations, the BMW Foundation Herbert Quandt and the Eberhard von Kuenheim Foundation, are dedicated to socio-political issues as well. The BMW Foundation Herbert Quandt is dedicated to promoting dialogue between politics, academia, science and society and regards itself as a "relay station" transferring academic analyses and practical competences from various sectors and regions of the world to other areas where they may be used. The Eberhard von Kuenheim Foundation works with partners to develop and test pilot projects, setting things in motion in areas of society where action needs to be taken. It sees itself as a provider of best-practice approaches for society - approaches which may be operated independently after successful testing and have a far-reaching impact in their everyday application.

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ANALYSIS AND STRATEGY: BMW and VOLKSWAGEN

For over three decades, BMW built its brand to be synonymous with performance and the driving experience. The brand character and tone (serious, focused, and engaged) remained unwavering for the most part, while drivers enjoyed innovative, high-performance-yet-accessible vehicles that connect them with the road, rather than isolating them from it.

BMW created a highly coveted brand franchise by successfully cultivating an extremely loyal following of luxury-performance automobile consumers, especially in the face of stiff competition from Germany and Japan. Looking across the global automotive industry landscape, the premium automobile manufacturer from Munich has the most to lose, should the integrity of its brand begin to falter. Yet recent changes in BMW’s product development and marketing strategy leave us wondering whether the Bavarians are deliberately veering from their familiar route, or if they will in fact be caught off-guard as this otherwise finely-tuned machine drifts into another lane.

The Brand in Context

First, let’s take a look at BMW in context of the global automobile industry. In recent decades, the industry has undergone significant consolidation among manufacturing enterprises. From multiple acquisitions by Ford to the Daimler-Chrysler merger, many automakers now enjoy economies of scale and global distribution networks that afford significant advantages in procurement, R&D, manufacturing, and distribution.

The synergies borne by these scale economies allow larger manufacturers to better weather fluctuations in the macro-economic environment, yet profit from the evolving needs of the car consumer. For instance shifting production away from gas-guzzling SUVs to more economical automobiles helps manufacturers profit in years where oil prices rise; while developing innovative brands and designs can satisfy new segments of consumers who will pay premium dollars for differentiated features and styles. Manufacturers that cannot rely on scale to deliver profitable returns need to ensure that their brands and limited product lines remain highly differentiated and relevant, and continue to aggregate a growing consumer following in the face of sophisticated competition.

Even without a degree in microeconomics, you can get a sense of the relative advantage among various manufacturers by examining the sector chart below. The chart plots relative automobile unit share and growth rates of the major manufacturers.

Depicting relative “share of garage” illuminates several observations:

- In a mature category tamed by annual growth of two percent, above-average growth for one major player will come at the expense of flat to declining sales of another. Here, strong competition from Japan and Europe chips away at Ford and GM’s global dominance.

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- In order to enjoy greater cost advantages as well as research and development, distribution, and marketing synergies, volume players are compelled to defend their positions by consolidating tertiary brands (for example, Mazda, Volvo, Land Rover, and Jaguar under Ford Motor Company), or joining forces (for example Nissan and Renault).

- When measured by relative unit growth, the BMW group (helped recently by the introduction of the new MINI) has enjoyed the most success in serving and aggregating loyal and new customers around its brands.

BMW succeeded in differentiating its product line to address the growing needs of its target audience, introducing the Z3 roadster and the X5 sport utility in the late 1990s. By the end of 2003, fully ten percent of all BMW sales were in the “light truck” category. The new MINI, launched in 2001 as a separate master brand yet arguably benefiting from the halo effect of its parent brand, was a phenomenal success, reaching estimated sales of over 120,000 units in 2003, or ten percent of the BMW Group’s unit sales. Nonetheless, isolating pure BMW unit sales reveals respectable five-year unit growth of 30 percent, a virtual tie with the growth of Mercedes-Benz.

Drive Diversion

But just over the last few years, some major tweaks have been churning out of BMW’s design and marketing departments. Perhaps threatened by the marketing savvy and performance-minded products from Audi, Mercedes, Infiniti and others, BMW has decided to shake things up a bit in its quest to keep the core brand distinct from the pack. And while significant shifts in design philosophy, driving qualities, or brand identity could alienate loyal consumers and damage brand equity, BMW has ironically put these very attributes into play in what appear to be some risky moves to achieve greater brand relevance.

The Bavarians certainly succeeded in shaking things up from a core product standpoint. It began in the fall of 2001 when BMW introduced the radically restyled 7-series luxury flagship, which focused heavily on form and technological innovation. The love-it-or-hate-it design introduced aggressive and controversial angles to BMW sheet metal, especially those framing the “humpback trunk,” as one editor put it. The extreme makeover went beyond body design, re-arranging the traditional driver interface from a quirky column-mounted shift mechanism to the oft-criticized iDrive multi-function control. Automotive journalists fussed for over 15 minutes just to start and engage the car in drive, never mind operate the air-conditioning. And as Frank Markus of Car & Driver wrote, “the new 7 seems less intimate, more aloof and disconnected from the driver than its forebears” – quite a contrast with traditional Bimmer gestalt.

The 7-series edgy styling and technological gadgetry set the tone for the new ranges of BMW sedans: The recent 5-series replacement features speed-sensitive steering ratios (a further evolution from traditional driver interface), and trunk design that one journalist termed “angry.” Judging by the overall flavor of trade reviews, the new flagship has ushered in more of an “ultimate technological revolution” than a further enhancement of the driving experience.

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Dating back to the first 3-series in 1975, BMW has been well served in the US and UK by the ubiquitous tagline, the Ultimate Driving Machine. Today, however there appears to be a shift in North America to align with the Joy of Driving brand positioning used globally. While this move may facilitate some marketing synergies and unite today’s broader product lineup under a more accessible brand, it seems to dilute the power of the Ultimate Driving Machine associated with BMW’s core sedan offerings.

Fortunately for BMW, taking risks has not resulted in disaster yet. But the shift in strategy may already be exposing some setbacks at a time when most luxury brands are struggling through a weak first quarter. While last year’s initial sales build for the new 7-series actually exceeded that of the preceding design, sales through February 2004 for the 7-series are down 21 percent versus last year. The American watchdog publication Consumer Reports recently singled out BMW’s flagship as the most unreliable European model, with more reported problems per 100 cars than other models in its class. Among vehicles that have been recalled multiple times, the 2000 to 2001 X5 nearly tops the list with 12 recalls, according to the Center for Auto Safety.

It’s always interesting to see a tried and true brand change course. At the end of the day, while the designers and marketers tweak the Machine, hopefully they’ll continue to steer the Ultimate Driving brand down a road that’s true to its heritage.

VOLKSWAGEN

Fluctuating Market Presence in North America

In the 1960s, Volkswagen captured the North American market for the small, inexpensive automobile with the original Beetle, and soon established a Beetle assembly plant in Westmorland, Pennsylvania. However, with the rise of Japanese and other Asian manufacturers in the entry-level market during the 1970s and 1980s, Volkswagen saw its market share in North America fall precipitously. Also facing more stringent environmental and safety standards in the US and Canada, (but despite a government-assisted plan to upgrade the Westmorland assembly plant), in 1986 Volkswagen decided to cease all assembly operations in the U.S. and Canada and rely entirely on imports to service the market. Not facing the same constraints in Mexico, production of the Beetle continued at the Puebla plant, just as it does today.

As stated previously, the relative importance of North America has been on the rise in recent years. This is largely due to the strength of the U.S. economy, but also to Volkswagen’s success in promoting sales of its more expensive vehicles in the U.S. and Canada. Maintaining a strong focus on sales of higher-end vehicles (which carry with them higher profit margins) is a priority for Volkswagen at this time. Accordingly, Volkswagen plans to continue to aim a sizable proportion of its advertising dollars in North America at the sale of its more upscale cars, promising not commit more than one-third of its approximately $100 million U.S. advertising budget to the new Beetle. [Beatty]

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Emphasis on Europe

From the mid-1980s Volkswagen's global strategy hinged on (1) continued growth in production and demand for the Beetle in emerging markets (especially Latin America) and (2) a concentration on the European market as the motor of growth in innovative product lines. (Volkswagen ceased producing Beetles in Germany in 1974, relying entirely on overseas production, mostly in Mexico and Brazil.) [Automotive News, 12/08/97] Indeed, the European market dominates Volkswagen's global sales. Not only has Volkswagen emerged as a leader in Europe, but in the post-Soviet era, Volkswagen has made considerable inroads in expanding production and sales throughout Eastern Europe, partly through its acquisition of Skoda. [Automotive News, 06/09/97]

Renewed North American Focus

During the 1980s and 1990s growth in VW's European market share required that VW rely on Mexican capacity to meet demand in North America. This renewed emphasis on Mexican production was also fuelled by a recognition of VW's price sensitivity in the U.S. market due to the depreciation in the dollar. [Automotive News, 06/30/97] (At current exchange rates, Mexican production is cost-competitive with production in Germany.) However, the most important aspect of Volkswagen's new strategy centers on the need for a strong presence in North America in the contest over global automobile markets. Part of this presence will take the form of imports from Europe (like the new Golf), but increased production in North America is also essential. Accordingly, Volkswagen has raised its level of production in North America by 34% in the past two years. [AMIA]

In synch with this strategy, Volkswagen’s chairman Ferdinand Peich points out that his firm is not content to rest on its position as the number one automaker in China, Europe, and Latin America. He emphasizes Volkswagen’s focus on expanding into new export markets, which is taking place through Volkswagen's extensive marketing research. One of the primary areas of intended market expansion is indeed North America. As evidence of this intention, the establishment of a new assembly plant North America will be the most significant aspect of Volkswagen strategy in North America for some time to come. Building this facility will allow Volkswagen to take full advantage of North American free trade and to expand its market presence in North America. [Deep]

Parts Sourcing

Volkswagen has historically relied on a system of global sourcing to supply parts to its assembly plants. In Mexico this has changed, however, as a direct result of the domestic content requirements of NAFTA. The purchase of parts form within North America, and particularly from the U.S. has expanded in order to meet the requirements of the NAFTA. Continuing to develop a network of North American parts suppliers will remain an integral part of Volkswagen’s North American strategy, especially in light of the proposal to locate a new assembly plant in North America.

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Production Techniques

Volkswagen has kept up with industry wide trends towards increased use of new organizational orientations and methods of "just in time" production. Volkswagen has focused resources on its labor training programs, seeking to facilitate the rotation of work functions amongst employees. This development has allowed increased flexibility in the production of vehicles by ensuring that qualified personnel are available to accomplish a variety of tasks within their respective production segments. Volkswagen has also focused on reducing inventories through the use of "just in time" production, which has led to the creation of much closer ties between parts suppliers and assembly plants.

The New Beetle

A good sense of the Volkswagen's new marketing strategy can be derived from the high-profile launch of the new Beetle in 1998. Seeking to stage a "convincing comeback based on the needs and wants of U.S. customers", and unlike the entry-level Beetle of the 1960's, the 1999 Beetle is a modern car that is marketed to more affluent consumers whose preferences can be swayed on the basis of both performance and nostalgia. This is reflected in the new Beetle's sticker price of $15,700 U.S. for the base model, which is priced above the Golf but below the Jetta. [Automotive News, 11/24/97 & 01/19/98]

Volkswagen's plant in Puebla is the sole global source of Beetle production, which began in December 1997. Volkswagen invested 1 billion dollars for development of the new Beetle and for plant preparation in Mexico. [Automotive News, 10/06/97] In addition to the new Beetle, the Puebla plant will continue to produce North America's Jettas and the old Beetle for sale in Mexico. However, new Beetle production in Puebla has meant that Golf production has returned to Germany. Volkswagen initially expected annual sales of 100,000 Beetles beginning in 1999, but due to high demand, this estimate has been increased to 130,000 annually. [Automotive News, 02/16/98] In contrast to lower levels of capacity utilization in the past, this high level of production will require maximum capacity output at the Puebla plant, at least until a new North American facility is constructed.

Fostering an Upscale Image

While the arrival of the new Beetle promises to bring increases in sales of Volkswagens, the firm is emphasizing its desire to continue to improve sales of its upscale vehicles, like the Passat and the new W-12 sports car (Germany). Maintaining this focus on developing an image as a car maker that is a rival to BMW and Mercedes is particularly important in the U.S., where expanding into the upscale market will carry with it substantial long-term gains. Accordingly, Volkswagen plans to ensure the health of its U.S. advertising budget for these vehicles, even as the ad campaign for the new Beetle is launched. [Mitchener]

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New Supplier Strategy

Purchasing costs represent approximately 60% of the cost of production for Volkswagen cars, with 60-65% of parts coming from outside suppliers. (Of these suppliers, 80% produce in Germany, and 15-18% in rest of Europe, with the remainder elsewhere in North America and Asia.) [Automotive News, 07/07/97] In a project launched two years ago at its Recende, Brazil plant, Volkswagen has begun to include suppliers in the assembly process itself. By directly employing only engineers, managers and supervisors, and requiring suppliers to employ their own workers in the assembly plant, Volkswagen hopes to facilitate the development of new components and models. According to this new supplier strategy, parts suppliers are also expected to shoulder part of the financial burden of building the assembly plant itself. As a result, Volkswagen expects unprecedented productivity gains. If it proves effective, Volkswagen will use the strategy in production in North America and around the world.

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REFERENCES:

www.volkswagenag.com

www.bmw.com