Stefan Jacoby, president and CEO of Volkswagen Group of America, has overseen the strategic direction of Volkswagen Group’s US automobile business since October 2007. Volkswagen Group of America houses the American subsidiaries of the worldwide family of five brands: VW, Audi, Bentley, Lamborghini, and Bugatti. Volkswagen is the world’s third-largest auto manufacturer and the largest car company in Europe. Jacoby began his career at Volkswagen in 1985, after receiving his MBA from the University of Cologne. In one of his senior management positions, he was responsible for sales in the Asia-Pacific region and for expanding two Volkswagen joint ventures in China. In 2001, he temporarily left Volkswagen to serve as president and CEO of Mitsubishi Motors Europe, headquartered in Amsterdam. Jacoby rejoined Volkswagen in March 2004.
Stefan Jacoby was interviewed in April by Vijay Vaitheeswaran, an award-winning correspondent for The Economist and executive-in-residence at NYU Stern, where he teaches an MBA elective on energy and the environment. Vaitheeswaran is the author of the book Zoom! The Global Race to Fuel the Car of the Future, which was selected as one of five finalists for the Financial Times and Goldman Sachs 2007 Business Book of the Year.
Vijay Vaitheeswaran: I’ve seen your company talk about this being one of the worst years in its history or certainly in recent history. Is it as bad as it seems?
Stefan Jacoby: I think it is even worse. It’s a long-term economic crisis. Now we see the downside of globalization, as the crisis is global. One problem is that it came so fast – nobody had foreseen it, and nobody could have prepared for it. Over the years, Volkswagen has optimized our product structure, global presence, and especially our productivity. And we believe, and we see this in the numbers, that we are better prepared than some of our fellow competitors. I think that we can actually overcome this “perfect storm.”
VV: You have a major plant in Tennessee – I believe a billion-dollar investment – at a time when the industry is suffering from global overcapacity and the arrival of more economically competitive, cheaper rivals from developing economies. How does it make sense to invest in a developed market that tends to have a glut?
SJ: If you don’t invest now, you destroy your future. We continue to invest in our product. We strongly believe that our products, future technologies, and future models are, on a global scale, actually guaranteed a bright future. Of course, we immediately cut costs wherever we could. And that, of course, is hard. But we are not moving one inch from investing in our product, technologies, and long-term plans here in the US. That would be a tremendous mistake.
VV: You’re a niche player, relatively speaking, in the US. Give me your perspective on the giants of American automobiles – the Detroit companies that are in such trouble now. Is the age of American dominance of automobiles in America over?
SJ: Actually, I don’t hope any of the American automakers step out of the business, because if so, another carmaker would come in, whether from China, India, Europe, or another Asian country. We want to play a bigger role here, and therefore we need to Americanize our products, by which I mean that we need to have a high local content and to have the product tailor-made to the American consumer. To do this, we need a strong American supply industry, and that can only survive with a strong American auto industry. That’s why we have a strong interest that our American competitors stay in business. I don’t want to speculate about what the American auto industry has done wrong, but whatever it was, it was done before this economic crisis. They haven’t been prepared for any “perfect storm.” That’s the competitive disadvantage the American auto industry has, at least General Motors and Chrysler.
VV: The US government has taken a dramatically stronger role. Does this pose a problem for you if the US government is now standing behind American car companies guaranteeing the products?
SJ: As long as we have fair competition, we have nothing against some support from the US government. I don’t believe that the key for the success and turnaround for GM and Chrysler is the government taking control. You need engineers, technology, and talented managers, not government-related persons. The plans I have seen from our competitors so far will not bring about a proper turnaround. They need to think differently.
VV: In Europe, closer to your company’s home base, we have seen calls for bailouts for Europe’s automakers or divisions of makers based in Europe. We’ve seen some suggestions that the proposals in France are protectionist. And again, in Europe, it’s much more common for governments to have stakes in car companies. What is the right way for Europe to handle this downturn in a way that is compatible with competitive markets and a long-term viable strategy?
SJ: I don’t believe the auto industry is a national industry anymore. The interlinking today is so global. We at Volkswagen are producing globally. Pretty soon in the US we’ll generate 2,000 direct jobs and 10,000 indirect jobs to suppliers. Our business and our shareholders are global. Of course, we have a German heritage, but through our brands we also have Spanish, British, and Czech heritage. We have joint ventures in China. We are part of the Brazilian culture and history because we are a long-term player in Brazil. I think it would be a huge mistake not only for the auto industry but for the whole recovery of the real economy if governments anywhere turn to protectionism.
VV: You talk about a global stage. We saw with much fanfare the recent launch in India of the Tata Nano – at $2,500 for the base model. Ratan Tata, the company chairman, has made it clear that he intends to dress it up a bit to launch it in Europe and eventually the US. Is this a real competitive threat for you at the bottom end?
SJ: Not really. It is a very interesting product. Mobility is a strong desire for individuals. It is a platform for wealth, growth, and development, not just for economies but for individuals. I think it’s fascinating to bring Indian consumers from the motorbike to the car. Whether it can compete in Europe or the US, I question. A car is a very important investment for consumers. Whether a Tata Nano is the right brand is also questionable.
VV: You mentioned branding. One of the things that Volkswagen and your group of brands have been known for is clever branding and your innovative use of marketing campaigns. How have you shifted your branding strategies, if at all, to cope with the downturn?
SJ: I will tell you a little secret. Behind the curtain, from the point of view of manufacturing, engineering, purchasing, and sourcing, we use the same technology for economies of scale. But to the consumer, we are all competitors, even within our group. We believe in strong, differentiated brands. We also position our brands in different product classes against different competitors. Portfolio brand management has a very important role. Market by market, each brand is viewed differently. For example, Skoda, which is an entry brand in Eastern Europe, is almost a premium brand in India, above Volkswagen. What you don’t see is that Audi’s technology is similar to Skoda’s. We take care to brand whatever the customer can see, feel, touch, and experience by driving a car. That’s the key for branding. We believe, especially in this difficult economic time, that consumers strongly want a reliable brand they can trust. If you maintain a strong brand, consumers trust you and come back into your showroom.
VV: If you were to capture the Volkswagen brand in a sentence, what do you want it to stand for in America?
SJ: An affordable German-engineered car that’s absolutely fun to drive. I’m a GTI driver – the pocket rocket, as it used to be called.
VV: Tell me a little bit about how your success in China evolved.
SJ: We were an early bird in China, having been there 20 years. We have been the market leader there, with more than 50 percent. The same way you develop your brand, you have to develop your market. You have to understand the causal differences between markets; be a sustainable, reliable, long-term business partner; and understand Chinese culture, business style, and politics. We have generations of engineers and managers who lived and worked in China, and it was not fun to work in China in 1985 or 1987. But they brought this experience back to our head office in Germany. China is now part of our Volkswagen culture. It’s a big, big business for us. We also have Chinese engineers working in Germany and are engineering our cars globally.
VV: Where do you stand on alternative fuel solutions?
SJ: We will rely on fossil fuel for the next 10 to 15 years or even longer. Still, we need to significantly improve this technology in order to bridge the gap from fossil fuel to, for example, electric vehicles. To make electric cars reliable, safe, and affordable will take much longer than people think.
VV: What is your perspective on attempts by the government to use technology-forcing regulations?
SJ: I think governments should be technology-neutral. We need the freedom to develop and see what will be the final and best solution for an environmentally friendly vehicle.
VV: What do you think of an alternative that is advocated by some, that is, using the price mechanism, such as carbon taxes?
SJ: With my European heritage and experience, I think this is a necessary step that the government has to take. Besides setting industry standards for fuel consumption and emissions, it is also important to guide the consumer toward fuel-efficient cars.
VV: Is it possible that the robustly developing countries – the so-called BRIC economies: Brazil, Russia, India, China – could take a different path than the US, which has developed as a very resource-intensive country with a lot of sprawl and not a lot of public transport outside of a few cities? In those countries, might we see the car not being central to the development paradigm?
SJ: If you compare the traffic density in metropolitan centers like São Paulo, Moscow, and Beijing to that of New York, New York is like being in heaven. These countries are reaching their limits as well, and they have to play a proactive role that could turn the needle toward bringing this into balance. I understand the Chinese have the same wish to drive cars as Americans and deserve the same human rights of mobility. But we have to think differently. I believe that in the future, we will not sell cars themselves anymore. We will sell mobility – integrated mobility. That means that in summer months if you’re driving a convertible on the weekend and not during the week, you are getting mobility by using public transportation. And in winter, you get an off-road or a four-wheel drive, as you need to go for the holiday and through the snow. So buying mobility and integrating this with public mobility could be an answer. But if we continue as we are, we’ll pretty soon reach the limit.
Q: When expanding the Volkswagen brand in the US, do you intend to maintain the way it’s looked at in Europe, as a quasi-premium car, or do you intend to move it lower down?
SJ: Volkswagen has a huge heritage here, more or less strongly related to the American pop culture of the ’60s and ’70s, in California, Woodstock, and so on. We just have to make use of this and revitalize the brand to the mass consumer.
Q: Can you talk about how the plan for the Chattanooga facility evolved between when it was originally thought of and today, which is a very different automotive market?
SJ: The decision was made in July 2008, when the first bad weather report (on the economy) had already appeared. It was based on an overall long-term strategy of growth to be number one. We have kept this objective for the year 2018. Sometimes it’s actually a benefit to be a German and to be a bit stubborn – during this heavy storm we are not moving from our original plan. It is the right timing to invest now in products and facilities here, because one thing is very clear: The economic climate will change, and then we will be ready for our growth.