Volkswagen's American assembly plant: fahrvergnugen was not enough - international marketing

Business Horizons, Nov-Dec, 1992 by William Beaver

Lotz was replaced by Rudolf Leiding, a lifelong Volkswagen employee, who from his first day on the job was determined to impose change on the company. Leiding, like Lotz, was no diplomat. In fact, his detractors compared him to a Russian tank, an especially harsh charge since Wolfsburg (the hub of Volkswagen's operations) was located only five miles from the East German border. But unlike Lotz, Leiding had a clear vision of the types of cars he wanted to produce and was willing to take the risks necessary to make it happen.

In this sense Leiding became Volkswagen's "champion of innovation." He wanted a radically new design to replace the Beetle, featuring a front engine, front-wheel drive, and water cooling, along with increased passenger safety. To accomplish this Leiding drove his management team mercilessly; those who didn't like it were forced out. He also wanted the new cars produced in record time. Leiding told his managers, "There are 24 hours in every day and I want every one of them from you if it is necessary to get the new cars out" (Carley 1974).

Leiding's crash program worked. In about two years Volkswagen marketed the Golf, which was called the Rabbit in America. Introduced in 1974, the Golf was a major coup and quickly became Germany's best-selling car. It was practical yet fun to drive, with impressive acceleration, handling, and traction--what Volkswagen today would call fahrvergnugen. It gave Volkswagen a competitive advantage, as evidenced by the fact that the other manufacturers were soon attempting to imitate it. However, the Golf had two major weaknesses. First, it cost as much as $1,000 more than the Japanese competition, and second, from the beginning the car had reliability problems. These weaknesses would come to haunt the American-made version as well.

Besides major innovation, Leiding concluded that to remain competitive, Volkswagen had to become a global company, with manufacturing facilities in different parts of the world. By the early 1970s, two-thirds of all VWs were exported, yet only 15 percent were manufactured outside of Germany (mostly in Brazil, where Volkswagen dominated the market). This of course made the company particularly vulnerable to currency fluctuations and protectionist legislation. In addition, productivity had been on the decline at Wolfsburg, while wages had been steadily increasing. Leiding believed that if Volkswagen were to remain a viable force in the world car market, it would have to manufacture more cars outside of Germany, specifically in the United States.

The idea of a U.S. assembly plant did not sit well with Volkswagen's supervisory board. Not only might some German workers lose their jobs, but the company was experiencing record losses at the time--$310 million in 1974. The internal debate became so heated that the chairman of the board resigned over Leiding's refusal to put aside the idea of a U.S. plant. On different occasions Leiding himself threatened to quit if an American plant was not developed. The debate highlighted the internal strife at Volkswagen during Leiding's tenure, not only with the supervisory board but also within Leiding's own management team. They not only resented his style but found the rapid pace of change unsettling. Adding to Leiding's problems were his attempts to mollify I.G. Metal's wage demands at a time of record losses for the company. Members of the board considered the CEO's tactics too heavy-handed in dealing with the unions, which further weakened Leiding's position. By the end of 1974 Leiding had resigned.