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The chief executive officer of Volkswagen proposed switching the
German plants entirely to the new model, the successor to the Beetle,
which the German plants would also supply to the United States mar-
ket. But the continuing demand for Beetles in the United States would
be satisfied out of Brazil, which would then give Volkswagen do
Brasil the needed capacity to enlarge its plants and to maintain for
another ten years the Beetle’s leadership in the growing Brazilian
market. To assure the American customers of the “German quality”
that was one of the Beetle’s main attractions, the critical parts such as
engines and transmissions for all cars sold in North America would,
however, still be made in Germany, with the finished car for the North
American market then assembled in the United States.
In its way, this was the first genuinely global strategy, with differ-
ent parts to be made in different countries and assembled in different
places according to the needs of different markets. Had it worked, it
would have been the right strategy, and a highly innovative one at
that. It was killed primarily by the German labor unions. “Assembling
Beetles in the United States means exporting German jobs,” they said,
“and we won’t stand for it.” But the American dealers were also
doubtful about a car that was “made in Brazil,” even though the crit-
ical parts would still be “made in Germany.” And so Volkswagen had
to give up its brilliant plan.
The result has been the loss of Volkswagen’s second market, the
United States. Volkswagen, and not the Japanese, should have had the
small car market when small cars became all the rage after the fall of
the Shah of Iran triggered the second petroleum panic. Only the
Germans had no product. And when, a few years later, Brazil went
into a severe economic crisis and automobile sales dropped,
Volkswagen do Brasil got into difficulties. There were no export cus-
tomers for the capacity it had had to build there during the seventies.
The specific reasons why Volkswagen’s brilliant strategy failed—to
the point where the long-term future of the company may have become
problematical—are secondary. The moral of the story is that a “clever”
innovative strategy always fails, particularly if it is aimed at exploiting
an opportunity created by a change in industry structure. Then only the
very simple, specific strategy has a chance of succeeding.