Volkswagen in the Face of Challenges: Is the Nokia Tragedy Repeating in the Automotive World?"

In recent days, numerous articles have emerged regarding the crisis that the renowned German company Volkswagen is facing, with predictions of factory closures as mentioned in the media and news outlets.

This prompted me to write this article to express some thoughts that may reflect the issue and propose potential solutions:

Volkswagen is currently facing a significant crisis, primarily due to the decline in its market share amid growing competition from Chinese companies like BYD and NIO. This is evident from its recent sales results and quarterly performance.

The challenges faced by Volkswagen, both external and internal, reflect a strategic management crisis related to the inability of the administration to adapt to the rapidly changing market and its reliance on traditional thinking. This situation mirrors what happened with Nokia’s management and the results that followed.

The central question is: How can Volkswagen regain its position and market share in the global market amid the increasing competition from Chinese companies like BYD and NIO?

Before exploring solutions, we should clarify the basic problems based on publicly available statements and results, without delving into undisclosed internal problems which remain company secrets:

External Environmental Factors:

1. Decline in Market Share: Volkswagen has seen a decline in market share as Chinese companies offer competitively priced products with attractive warranties and high quality.
2. Lack of Innovation: Despite Volkswagen's long history in the automotive industry, it has suffered from a slow pace of innovation in recent years, losing its competitive edge in electric vehicles and advanced technologies while its market share in conventional vehicles has also declined.
3. Inflexible Management: Volkswagen focuses on increasing short-term profits at the expense of investing in innovation and technology development. This short-sighted approach has negatively affected its ability to sustain long-term innovation and expand into new markets.
4. Government Support: The issue is no longer just about a commercial enterprise; it has become related to economic security in production within Germany and the European Union. Despite the support Volkswagen receives from the government, it is not comparable to the level of support provided to Chinese companies by the Chinese government, which follows a different economic strategy.
5. Loss of Trust: This refers to the loss of consumer trust based on two factors: Growing concerns about the quality of Volkswagen cars due to increased focus on maximizing production and cutting costs. The company’s focus on the consumable nature of its spare parts to increase spare part sales, which has raised their prices in the market.
6. Global Crises and Inflation: Global crises and rising raw material costs are not the main focus here, as they are common factors affecting all competitors, including Volkswagen.
7. Consumer Purchasing Power: Due to economic crises, inflation, and rising living costs, consumers are increasingly finding it harder to replace products frequently. As a result, their purchasing decisions are more focused on products that offer long-term value at the lowest possible cost. This trend highlights the importance of offering long-lasting products at competitive prices, which we will discuss further below.

Internal Organizational Factors:

Internal factors are crucial in determining the company’s ability to adapt to external changes and achieve its long-term goals. From the results of the company’s current performance, we can identify the following key issues:

1. Absence of a Unified Strategic Vision: The company was slow to adopt a clear strategy for transitioning to electric or hybrid cars. Compared to competitors like Tesla, which focused entirely on developing electric vehicle technology from the outset, Volkswagen moved at a slower pace, making it more vulnerable to pressure from Chinese competitors.
2. Coordination Issues Between Departments: With Volkswagen owning numerous car brands, including Audi, Bentley, Skoda, and SEAT, as well as having a majority stake in Porsche and Bugatti, the company is large and complex. This requires precise coordination across various departments and factories. It is likely that coordination issues between production teams and R&D are causing delays or overlapping efforts, especially with the shift to electric cars.
3. Focus on Profit Maximization: For a long time, Volkswagen relied on increasing production and achieving profits through traditional vehicles. Despite its growing efforts in innovation and shifting its operations towards electric vehicles, the company’s strategy for investing in electric cars is not competitive enough.
4. Delay in Decision-Making (Slow Market Response): Decision-making in the company may be slow and bureaucratic, which can hinder the company’s ability to quickly adapt to modern trends or implement changes. This gives competitors the opportunity to outpace Volkswagen.
5. Internal Pressures from Shareholders: A major issue that many large companies face, including Volkswagen, is the focus on maximizing short-term profits to maintain high income for top management and large shareholders. This strategy can have negative long-term consequences.

Several aspects contribute to this problem:

• Allocating resources to short-term profits: Focusing on short-term gains instead of investing in long-term innovation or technological transformation limits the company's ability to adapt to fast market changes.
• Cutting costs at the expense of quality and development: If the company’s strategy revolves around cost-cutting, it may reduce spending on productivity improvements and product quality, which could harm its performance and brand reputation in the long term.
• Concentration of power among senior management and large shareholders: Senior management may prioritize achieving significant financial gains in the short term instead of focusing on sustainability and long-term growth, leading to short-sighted decisions like reducing long-term investments.

All these factors could accumulate into a crisis, especially at a time when technological and competitive changes are happening rapidly. If Volkswagen continues with this approach without improving the balance between shareholder profits and investment in innovation and sustainable growth, it may face even greater challenges in the future.

Similarities with Nokia: There are notable similarities between the current situation at Volkswagen and what happened with Nokia, particularly in their approach to technological shifts in their markets. However, there are also important differences.

Similarities:

1. Delay in Adapting to Technological Shifts: Just like Nokia delayed its shift from traditional phones to smartphones, Volkswagen has been relatively slow in fully transitioning to electric cars. While competitors like Tesla quickly embraced electric vehicles, Volkswagen stuck with traditional technologies (gasoline and diesel engines) for too long, making it vulnerable to competition.
2. Focus on Short-Term Profits, Ignoring Market Shifts and Consumer Preferences: Just as Nokia focused on profits from its traditional phones even as smartphones gained popularity, Volkswagen focused on maximizing profits from traditional vehicles rather than investing in electric cars. This led to the erosion of its market share as consumers increasingly preferred electric vehicles.
3. Traditional Management and Lack of Clear Strategic Leadership: Nokia was known for its conservative management, focused on maintaining market control rather than taking risks with technological innovation. Similarly, Volkswagen has been hesitant to fully commit to the transition to electric vehicles, worried about losing profits from traditional vehicles.

The purpose of this comparison is to emphasize the urgent need for Volkswagen to change its strategy, adjust its short- and long-term goals, and restructure its management system.

After examining both external and internal factors, it is possible for the company to regain its leadership and market share if it considers the following:

1. Refocus on Quality Over Immediate Profits: I believe that shifting away from a focus on short-term profits would be a wise move for Volkswagen. Instead of maximizing profits through cost-cutting, plant closures, and reliance on spare parts sales, the company should return to its roots: high-quality manufacturing. Quality was always one of the factors that earned Volkswagen consumer trust in its early days, which contributed to its growth and success. If it can regain this focus on quality, it can restore trust among customers who are now seeking more affordable alternatives with long-term warranties.
2. Longer Warranties and Their Effect on Brand Trust: Many Chinese companies, such as BYD and MG, offer warranties of up to 10 years or more on their cars, which instills consumer confidence. This makes customers feel secure and encourages them to purchase cars from these companies, even at lower prices. By offering long warranties, Chinese companies reassure consumers that they are purchasing reliable products at a lower cost, giving them a clear competitive edge. Volkswagen needs to adopt this strategy by strengthening consumer trust through higher quality and reliable products, offering competitive warranties. This could be the decisive factor for consumers in their purchasing decisions, helping the company maintain its position in the market.
3. Leveraging Its Long History: Volkswagen has a long history in the automotive industry, spanning over 80 years of innovation and reliability in producing high-quality vehicles. This legacy makes it a trusted brand with a strong reputation among consumers worldwide, including in the Chinese market. Despite the rise of companies like BYD and NIO offering competitive pricing, these Chinese brands are still in the process of proving their long-term reliability. This historical advantage is something Volkswagen should leverage more effectively, investing in and building on it. This will help the company enhance its credibility and regain market share by offering high-quality products with continued innovation and an improved user experience.
4. Consumer Priority: Value Over Brand Name Reaffirming the previous point, we emphasize that today’s consumers are more aware of their purchasing choices. They no longer focus solely on brand names but on the value, they get for their money. If they can get similar (or even better) luxury features from a lower-priced car with long warranties, they are more likely to opt for the cheaper alternative. Lack of Focus on Quality Contributed to Declining Sales: As mentioned earlier, Volkswagen has faced a decline in some aspects of car quality in recent years, possibly due to a focus on increasing sales in areas like spare parts or selling cars with lower-quality levels, which has negatively impacted the brand's reputation. Today’s consumers are more interested in products that last longer. Meanwhile, Chinese car manufacturers have realized that long warranties are a strategic tool to outshine competitors, especially in European markets, where European cars typically offer shorter warranties, making them less appealing to customers who are seeking long-term security. "We recently saw an old 1979 Mercedes station wagon in the news, towing several trailers full of passengers and still running as if it were a truck. "This may seem like a regular sight, but in reality, it reminded us of the quality and reliability of cars from the past.
5. Expansion in Acquiring Technology Companies The company should focus on acquiring established companies with advanced technology in the automotive industry or related fields such as artificial intelligence. This approach could help the company reduce the time needed to develop these sectors internally. Even if the value of these companies may sometimes exceed market expectations, acquiring them will allow Volkswagen to directly access ready-to-scale technological solutions, keeping up with the market. It would also reduce the need for significant investments in research and development.
6. Leveraging Global Alliances: Volkswagen should look for strategic alliances, particularly with technology firms, to accelerate its digital transformation. Partnerships with companies in the tech space could help bring cutting-edge innovations to Volkswagen’s vehicles, especially in the arranging Global Alliances: Volkswagen should look for strategic alliances, particularly with technology firms, to accelerate its digital transformation. Partnerships with companies in the tech space could help bring cutting-edge innovations to Volkswagen’s vehicles, especially in the areas of autonomous driving, connectivity, and battery technology. Collaborations with universities and research institutions could further enhance Volkswagen's innovation capabilities.
7. Investment in Innovation and Technology:

Volkswagen needs to invest more in technology that can provide a better and safer driving experience for consumers. If the company can integrate this technology with high quality and attractive warranties, it will be able to regain its position in the market. However, I believe that hybrid cars are more reliable than purely electric cars, due to various factors. The integration of technologies and the differing market environments make hybrids a crucial element, provided they are built with high quality and reliability.

Here, I want to refocus on an element that I find extremely important, even though it has been mentioned previously in my comment:

1. Engine Quality and Its Impact on the Company’s Reputation: "Will the engine continue to operate efficiently over time? Will it be easy to maintain?"

If we look at Japanese cars, we find that they offer highly reliable engines over the long term, which continuously maintains their reputation. Companies like Toyota and Honda were among the first to adopt a reliability policy, earning the trust of consumers. Even if their cars are slightly more expensive, the trust in their engines makes consumers feel they are getting long-term value. By improving engine quality and innovating in electric or hybrid engine technologies, Volkswagen can restore confidence in the reliability of its vehicles, making them a more attractive option for consumers who seek a car that lasts for a long time.

2. Reducing Spare Parts Prices and Its Effect on Purchase Decisions:

As mentioned, spare parts prices have become one of the largest factors influencing purchase decisions. In the past, this point may have been less important, but today, with strong competition in the market and more affordable options available, consumers are looking for cars with low-cost spare parts and maintenance. ? Japanese cars have always excelled in this area. Their spare parts are readily available at reasonable prices, making maintenance costs low. This is the strength that Japanese cars offer, which makes them excel in Gulf and Asian markets, where maintenance and ongoing costs significantly affect purchasing decisions. ? If Volkswagen can improve spare parts availability and lower their prices, this will increase its attractiveness to consumers and provide a competitive edge in markets like the Gulf, where maintenance costs are a crucial factor. This step can also improve the resale value of the car.

• The Impact of Spare Parts Warranties on Market Value:

As I mentioned, companies like Toyota and Honda have adopted a reliability policy to make their cars more attractive to consumers, which also includes offering long warranties on spare parts and maintenance. These warranties enhance the customer’s trust in long-term reliability and increase the car's value in the market. This helps maintain the vehicle's value in the resale market. ? Conversely, Volkswagen needs to expand its warranty policy and reduce maintenance costs to become more competitive against companies offering long warranties like Chinese and Japanese companies. For example, BYD offers electric cars at attractive prices with significant warranties on batteries and engines. In this context, if Volkswagen continues to provide after-sales services at a higher cost, it will lose consumers looking for greater value.

• The Impact of Lower Car Prices on Purchase Decisions: With increasing competition in the car market, consumers today care not only about the quality of the car but also the long-term costs of ownership. If Volkswagen can reduce its car prices while maintaining high quality and offering long warranties, this could significantly increase its sales. Even if its profits decrease, maintaining market share is more important in the long run, and this will give Volkswagen the opportunity to expand its customer base.
• The Role of Dealers and Maintenance Quality in All Markets, Including the Gulf: The Gulf market is one of the markets where maintenance costs and spare parts availability have a significant impact. If Volkswagen wants to compete with Japanese and Chinese companies in these markets, it must improve its maintenance services and spare parts prices. Japanese cars have become popular in these markets due to the low maintenance costs and the ease of finding spare parts at affordable prices. ? Controlling dealers to prevent them from raising car prices under the guise of additional services is crucial. Although the warranty is global and not issued by the dealer, dealers often use additional services as a reason to increase the price of the car by more than 20%, and sometimes more, on the pretext of the warranty offered, which is essentially the manufacturer's warranty. ? Dealers impose extremely high maintenance fees, sometimes over 300% of the cost in external maintenance centers, and sometimes the spare parts' prices exceed their market price by 90%. ? This leads to a decline in consumer interest in purchasing the car due to the significant increases in spare parts and maintenance costs. ? Increasing trust in long-term reliability could be the key to regaining market share. If Volkswagen can achieve this, it will gain greater appeal in Middle Eastern markets.

8. Consumer-Centric Marketing: Volkswagen must rethink its marketing strategies. Moving away from traditional advertising and focusing more on consumer-centric marketing—highlighting the value proposition of its products, the long-term benefits, and the emotional connection with the brand—will resonate more with modern consumers. Building an emotional connection with customers, especially in a competitive market, can help create brand loyalty and repeat business.

9. The Necessity of Reinvesting Profits in the Current Market:

Before discussing this topic, let's review the company's profits for 2023 and the policies adopted according to publications:

1. In 2023, Volkswagen reported strong financial results, with revenues rising by 15% to reach €322.3 billion, driven by increased deliveries, improved product mix, and positive pricing effects. Net profits also rose by 13.1% compared to the previous year, reaching €17.9 billion ($19.35 billion).
2. Volkswagen distributed dividends to its shareholders in May 2023. According to "Stock Events," a dividend of $9.56 per share was announced, with the record date on May 11, 2023, and payment date on May 15, 2023.
3. According to its financial report, Volkswagen had approximately 501.3 million shares in circulation in 2023. Therefore, the total distributed amount would be around €4.79 billion.
4. Volkswagen announced plans to invest €180 billion (equivalent to $192.6 billion) between 2023 and 2027, with more than two-thirds of the amount earmarked to support the transition to electric vehicles and digitization. The German automotive giant earlier announced operating profits for 2022 of €22.5 billion, a 13% increase from the previous year, with a 26% rise in battery and electric vehicle shipments.
5. It is important to differentiate between net profits and operating profits, which are "earnings before interest and taxes (EBIT)."
6. In 2025, Volkswagen's total liabilities amounted to €424.64 billion, an increase of 6.52% from €398.64 billion the previous year.
7. In 2025, Volkswagen's total debts amounted to €186.812 billion, an increase of 7.08% from €174.46 billion the previous year. (Source: https://eulerpool.com)

Based on the above, we confirm that:

• In light of increasing competition, especially from Chinese companies offering attractive prices and long warranties, it is essential for Volkswagen to focus on reinvesting profits rather than distributing them.
• Reinvesting profits is a way to finance innovation and expand into modern technologies like electric vehicles, engine development, improving spare parts quality, and other aspects that help strengthen its market position.
• Given the significant challenges the company faces, continuous investment in improving products and technologies is essential to maintaining market share and ensuring sustainable growth in the future. Reinvesting profits will help strengthen Volkswagen's position in both European and Asian automotive markets.

Challenges of Neglecting Reinvestment:

• If Volkswagen continues with its current policy and focuses on large dividend distributions without considering investment in development, it risks losing its market value in the future.
• Volkswagen could face a significant loss in market share if it continues to follow short-term strategies that only focus on maximizing short-term profits, rather than reinvesting them into product development and increasing production capacity.
• If Volkswagen aims to maintain its market leadership and achieve sustainable growth, it needs to reassess its strategy and focus on reinvesting profits to surpass its competitors. Sustainable growth can only come through investment in research and development and offering innovative products that keep up with technological advancements.

And to conclude:

The senior management bears the primary responsibility for steering the company toward sustainable success. Management must adapt to the new reality where technological advancements are accelerating, and competition is increasing. They need to conduct a thorough analysis of the current issues the company is facing, such as the decline in market share and quality, and accurately identify the root causes of these problems. Furthermore, they must review the distribution strategy and focus on results.

Management should focus on rebuilding customer trust by improving quality and offering solid warranties. Immediate results, such as enhancing products and providing extended warranties, will be crucial in regaining market share. They should also develop performance metrics to determine specific benchmarks for measuring progress in quality improvement and market expansion, such as customer retention rates or sales growth percentages.

Additionally, management must reconsider its internal policies regarding delegation of responsibilities, empowering employees to make decisions that can improve productivity, creativity, and deliver innovative solutions to develop products that meet consumer needs.

It is essential to continuously monitor and assess the company's position in the market and the quality of its products, ensuring ongoing performance improvements based on these evaluations, as well as responding to ongoing feedback and consumer opinions regarding cars, their quality challenges, and warranties.

By focusing on innovation, improving quality, restoring brand trust, and reinvesting profits into research and development, Volkswagen can overcome current challenges. This requires a flexible and strong strategy based on sound management principles such as effective communication, careful planning, and in-depth problem analysis.