Automobile Industry

The auto industry, both in the EU and N. America, has too much capacity compared to demand in its light vehicle sector. As seen in the graph, this trend is increasing. Sooner or later, the auto industry will either need to size down to increase utilization, or increase demand. As for Volkswagen, it hopes to achieve the latter by introducing Up! Source:PricewaterhouseCoopers[9]

In October 2009, Volkswagen planned to launch its new small car line-up, Up!, in the second half of 2011. Up! will be produced at Volkswagen's Slovakian plant in Bratislava, where the German automaker is investing EUR308 million related to the production of the new model.[10] Up! represents a change in Volkswagen's line-up of vehicles toward smaller and cheaper cars due to changing demand in the auto industry. First, automakers are increasingly pressured by governments which struggle to meet ambitious carbon-reduction targets. Secondly, by 2020, 40% of new car buyers in developed markets will be over 60 years of age, compared with less than 30% in 2009.[9] Although the affluent old favor premium brands, they tend to want smaller and cheaper cars as being mostly retired, they are generally buying a car with their own, rather than with a company's money.[9]

Volkswagen's introduction of Up! is consistent with other automakers that have realized that using profits from bigger cars to subsidize smaller ones presents long-term profitability issues in the face of changing demand. For example, GM plans to adopt low-cost manufacturing techniques by not installing unnecessary technology in its cheap cars.[9] On the other hand, Lewis Booth, Ford's CFO, plans to make small cars that are as good to drive as bigger ones and charge accordingly.[9]

Audi produces upscale vehicles engineered for greater driving precision. Deliveries decreased 5.4% to 949,729 cars in FY2009 compared to FY2008.[8] These increases in sales were mainly due to the expansion of Audi's

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