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Volkswagen Group is the world’s second largest automotive manufacturer. In addition to their eponymous passenger car brand, Volkswagen Group is responsible for eleven other major car, motorcycle, and commercial vehicle brands, including Audi, Seat, Skoda, Ducati, and Scania.

While the ubiquitous company has continued to post impressive numbers for both profit and market share, it appears to be facing a mixed outlook for the future. In this article, we’ll use PESTLE analysis — which looks at the Political, Economic, Sociocultural, Technological, Legal, and Environmental factors affecting a business — to review Volkswagen Group’s current and future business environment. While trade tariffs, harsh regulations, and changing consumer preferences may pose a threat to the automotive giant, its established brand name and ability to build green vehicles will help to maintain profits, especially given growing consumer spending.

Political

Here are the Political factors affecting Volkswagen Group:

Trade tariffs

Both the United States and the United Kingdom are major markets for Volkswagen Group’s many vehicles. Unfortunately, there are serious doubts about the future of trade regulations between Germany — the company’s home base — and those countries. Throughout 2018 and 2019, the United States has repeatedly shown its willingness to place tariffs on goods imported from the European Union. Until now, the automotive industry has not been subject to these tariffs, but there’s a very real risk that might change. As for the United Kingdom, its much-debated decision to leave the European Union may result in additional charges being placed on the import of Volkswagen Group vehicles.

Economic

Here are the Economic factors affecting the Volkswagen Group:

Growing consumer spending

On the plus side, consumer spending is growing across all corners of the globe. This means that consumers are more willing than ever to purchase consumer goods such as electronics and, to an extent, automobiles. Increased consumer spending is especially significant for automotive brands in poorer markets, where consumers may have previously purchased no vehicles whatsoever. In wealthier markets, increasing consumer spending is still beneficial as it results in more expensive model choices and the purchase of various extras.

Sociocultural

Here are the Sociocultural factors affecting Volkswagen Group:

Mixed brand perception

Volkswagen Group’s various brands are relatively well-perceived. Its most esteemed brands include Lamborghini, Audi, Porsche, Buggati, and — to an extent — Volkswagen itself. However, some of Volkswagen’s brands are less appealing to consumers, such as Seat or Skoda. In any case, many of Volkswagen’s brands (including a mixture of both expensive and affordable ones) struggle with recognition amongst luxurious, innovative competitors such as BMW or Tesla. This is especially true among a younger audience.

Shift away from driving

While consumer spending is growing, consumers’ desire to drive isn’t. For reasons both financial and environmental, many individuals are choosing to give up car ownership and travel with bicycles, scooters, buses, trains, and ride-sharing apps such as Uber or Lyft. This could present a major downturn in sales both for Volkswagen Group and the industry as a whole. Once again, this Sociocultural shift seems most prominent among younger consumers.

Technological

Here are the Technological factors affecting Volkswagen Group:

Self-driving cars

What with the huge progress made by Tesla in recent years, automotive manufacturers are scrambling to develop their own self-driving vehicles. From a technological perspective, there are both hardware and software challenges involved in developing autonomous vehicles. Many of the hardware constraints, including high-quality video cameras and precise sensors, have already been overcome. However, it appears that the key to safe, reliable self-driving cars lies in developing software which can accurately recognize and respond to even the most unusual road situations. Thankfully, Volkswagen Group’s strong financial standings make the necessary research and development a lesser issue than for newly established automotive manufacturers.

Green technologies

Aside from autonomous driving functionalities, the major technological challenges in the automotive industry relate to building more efficient and environmentally-friendly vehicles. At present, the most promising green technologies for the automotive industry include electric motors, batteries, and hydrogen fuel cells. Volkswagen Group has already shown its ability to produce battery-powered electric cars with various Audi and Porsche models. Likewise, Audi has shown significant interest in further developing hydrogen fuel cells for use with electric vehicles.

Legal

Here are the Legal factors affecting Volkswagen Group:

Emissions scandal

In 2015, the United States Environmental Protection Agency sparked a multi-year scandal when it announced that Volkswagen Group had purposefully cheated diesel engine emissions test. Millions of Volkswagen Group vehicles produced between 2009 and 2015 were built using software that temporarily reduced emissions during testing, but failed to meet regulatory requirements during everyday use. The scandal resulted in numerous legal cases, which resulted in tens of billions of dollars in fines and damages, as well as a decrease in sales and stock price. Volkswagen Group has since corrected many of its misdoings and may be much more likely to abide by the law into the future.

Environmental

Here are the Environmental factors affecting the Volkswagen Group:

Green technologies

The development of green technologies such as electric motors, batteries, and hydrogen fuel cells is not just a technological matter, but also an environmental one. While green alternatives to traditional automotive engines offer various benefits to consumers (such as improved gas mileage or snappier throttle response), the main reason they are being developed is to satisfy Environmental concerns of both governments and consumers. Until now, automobiles have been a major source of pollution, but it seems this is set to change within the near future. For Volkswagen Group to stay relevant, it will need to adapt to this automotive shift.

PESTLE analysis of Volkswagen: Final Thoughts

Volkswagen Group is no small fish in the automotive world. Responsible for some of the world’s most popular automotive names, it’s hard to imagine a behemoth company like this one struggling into the future.

This PESTLE analysis has revealed that the Volkswagen Group is still highly thought-of, well poised to absorb increases in consumer spending, and ready to adapt to Environmental concerns. However, Volkswagen Group will have to overcome numerous challenges in the current macro environment, including various trade tariffs, changes in consumer automotive preferences, and tough regulatory frameworks.

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