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VW AND AMERICA – LOST LOVE
February 27, 2015
Volkswagen is a global powerhouse, with four mainstream brands (VW, Audi, Skoda and Seat) and a several luxury brands (Bugatti, Bentley, Lamborghini and Porsche), a motorcycle brand (Ducati), and several truck brands.
Sales revenue worldwide last year was $226.6 billion and net profit was $12.1 billion, a 20% increase over last year. Very nice. Volkswagen had a healthy 2014, and not all automakers did. They are doing just about everything right in the markets they’re in.
Except the U.S. market, which is the second-largest new car market in the world (China passed us a couple of years ago, folks), and a place where VW just can’t get it together, except in college towns and on the coasts. They’ve had these same issues for years, and no matter what they do, they just can’t seem to be the big player here that they are in the rest of the world. And even more painful for VW executives, they can’t even get back to the big player status they enjoyed in this country for decades, when they cast a large shadow over the foreign car market in the States.
VW and America – Lost Love
In fact, VW has been in a depressing two-year sales decline in the States, and this is while the new-vehicle market here has been steadily increasing. So, while everyone else’s sales are going up, VW’s sales are going down. That’s never a good situation. That’s when you know, as a manufacturer, that something is really, really wrong.
The consensus regarding what’s wrong is that the VW lineup in the U.S. is not tailored closely enough to American tastes. With that in mind, VW has brought out a new, next-generation Golf, which won the coveted North American Car of the Year award a couple of months ago. However, Americans don’t buy a lot of hatchbacks, and even if Golf sales went up 50% (which is not going to happen), that still wouldn’t move the needle on VW’s fortunes in the United States, because VW hardly sells any of them to start with.
Which, in the writer’s opinion, is just a crying shame, because this writer believes it’s the best car in the VW lineup for the money you spend. But, Americans are just sort of repelled by hatchbacks, so increasing Golf unit sales doesn’t do anything for the company.
Nope, that is only going to happen through the brand’s big guns, the Jetta and the Passat. Or, if they add some more models that are as popular as the two sedans.
Well, Volkswagen plans to make both of those moves. There’s a new (unnamed) mid-size crossover going on sale in the first quarter of 2017, and a redesigned, long-wheelbase Tiguan compact crossover that arrives right after that in the second quarter of 2017.
A new Jetta is penciled in for a late-2017 U.S. sales launch, followed by a redesigned Passat arriving in early-2018.
Additionally, Volkswagen says that all four of these models that they envision as the big sales hitters that the brand needs will be built in the U.S., thereby reducing costs and time to market. The aforementioned, excellent Golf, which no Americans seem to want, will continue to be built in Mexico, where it moved last year. Before that, all Golfs were built in Germany and imported here, sometimes at a loss.
The in-country manufacturing is particularly good news in terms of protection against currency exchange fluctuations and just-in-time deliveries.
Wait, there’s more afoot. VW says it’s also going to add another 100 new dealerships to their 650 dealerships already here in the United States. The calculation is that a dealership nearby, as opposed to 100 miles away, is going to provide a sales opportunity that didn’t exist before to the people where the new dealership is, as well as providing some confidence vis-à-vis service after the sale. Good logic, certainly.
Are these changes going to produce results? Hard to say. VW has come up with a series of turnaround plans for the U.S. market for decades now, and none of those plans has worked. And each plan has been heralded as the one that was going to produce a different result.
VW is not going anywhere; they’ve been in the U.S. market since after WWII, and staying here is a non-negotiable strategic imperative. But, they’re in business to make money and they need to turn a profit here in this market, like they do everywhere else.