Volkswagen: Time To Get a U.S. Life
March 13, 2008
By Bill Visnic
The Volkswagen Group sold a lot of vehicles in 2007, a record number at just less than 6.2 million.
That’s good for fourth in the world. Yet in the U.S., typically viewed as the world’s most important — if not prestigious — market, Volkswagen Group of America Inc. stumbled through another miserable year to ring up 230,572 sales.
For decades VW could call itself this nation’s best-selling European brand. Now, in a juxtaposition that would have seemed laughable in, say, the 1980s, Mercedes-Benz, whose cheapest model starts not far from where VW cars top out, sells more in the U.S. than VW.
BMW found a vast 60,000 more customers last year than did VW; so did Mazda. Meanwhile, GMC, Hyundai and Jeep — typically considered lightweight brands in respect to the Fords, Toyotas and Hondas of the world — all doubled VW’s showroom results.
Then there’s the money: VW hasn’t made a dime in the U.S. since 2002, when, incidentally, it sold 100,000 more vehicles than last year. VW lost something on the order of $900 million in North America in 2006, and the swath of red ink likely will be wide when 2007’s numbers are released.
The company’s near-legendary squandering of its U.S. market share makes its assertions to sell 800,000 VW-brand vehicles within a decade seem quixotic at best — or irrational and absurd by those who snigger at the chasm between reality and VW’s vision.
Is it possible? Unlikely. VW’s best year in the U.S. was 1970, when it sold 569,000 vehicles. That was pre-Japan invasion. "Pre" many things, including the birth of a vast portion of its current customers.
Forget that sales target, then. And the distractions of an increasing influence from newly aggressive shareholder Porsche. Better to say that in the U.S., VW must recover the sales potential of its brand. Whether it is structurally and philosophically equipped for the task will rely on the company’s ability to finally address its fundamental and longstanding foibles here.
The first and only job for now: Win back the VW faithful. VW need only peer into Toyota and Honda showrooms to find them.
People — particularly former owners — want to like Volkswagen. The old Volkswagen, before its ongoing exertions to move “upmarket,” which should be immediately abandoned. Exercises such as the Phaeton, Touareg and highline versions of the Passat — including the soon-to-be-released Passat CC — don’t settle well in the brand’s gene pool, and along with lack of sustained, viable product, has been one electro-prod driving away the traditional VW customer. As has been pointed out ad nauseam, the upscale stuff is supposed to be the province of the VW Group’s equally ambitious Audi brand.
But VW loyalists won’t be inspired by rebadged Chrysler minivans. Never mind the poor timing and execution of this move — the Routan is not particularly convincing as a VW, inside or out, and the 
segment is bottoming, devolving into a generic morass.
A VW from its glory days, confident of its decisions and its brand, never would have resorted to this. Even at its most desperate, management would have at least insisted the things use VW powertrains. Yet executives in both the U.S. and Europe can rationalize hoodwinking a faithful soccer mom into paying a premium for a VW van with an insipid Chrysler V6. This is not a brand-reinforcing step, and the Routan’s not even on the road yet.
Next, VW’s sticker prices have to come down. Like the domestic automakers, VW’s lost a generation of previously willing buyers and won’t win them back with the overpriced, overcontented fodder currently on the showroom floor (in not quite these words, VW Group CEO Martin Winterkorn said as much at last week’s Geneva auto show). The Rabbit is a fine car, but, priced thousands more than the stylish,
class-barometer Honda Civic or the impossibly sublime Mazda3, it is a non-starter.
Much the same for the rest of VW’s lineup. The brutal currency-exchange rate won’t make it fun, but prices must be chopped until a U.S. plant is established to pump out volume models that sell in this market.
A U.S. plant also addresses another serious deficiency: The company can’t seem to get the stuff here. It’s no longer acceptable to launch the new-generation model in Europe and force the U.S. to wait a year or more for the same car. Audi executives told AutoObserver at the Detroit auto show they know it is not a good situation, saying, “We have to manage that.”
The status quo is too old-world to endure. The U.S. arm desperately needs the Tiguan compact crossover, 
but it’s been unspeakably too long in getting here. Ditto for the company’s signature technology, diesel engines: Fuel prices are spiking, yet VW delayed launch of the latest-generation four-cylinder diesel from spring to sometime in late summer, blunting the impact.
The U.S. problem child is nothing more than the product of VW’s longstanding strategic deficiencies as a global player. Setting inscrutable new sales targets, however, will accomplish no more than past management solutions handed down from Germany.
Perhaps likable and astute Stefan Jacoby, VWGA’s newly minted president and chief executive, finally is the general whose tactics will be effective — and trusted. And perhaps moving its headquarters from Michigan to Virginia is one kind of knee jerk that will have positive results.
But in the end embracing the brand’s core principles, European style and aesthetic at affordable prices is all that’s ever been required.
Photos by Volkswagen
1 — 2008 VW New Beetle
2 — 2008 VW Touareg
3 — 2008 VW Routan
4 — 2008 VW Rabbit
5 — VW Tiguan
Posted by Michelle Krebs at 4:22 AM under Analysis , Business , Commentary , Companies | Comments (14) | digg this | Seed Newsvine
Mr. Visnic has hit the nail on the head. This brand is in trouble in the US, yet they keep bringing out more and more "up-market" cars. Sure the Rabbit is a great buy, but with the "limp" 5-cyl as the only engine offering? Where is the diesel? The Tiguan is an amazing vehicle to look at (I have been to Detroit and home auto-show in Chicago) and I would buy it! But, oh... the diesel is a maybe? What is VW thinking? They need to get a clue: get the quality up where it should be, get rid of the stale Beetle, and bring back the diesels NOW before all of the buyers are gone.
Posted by: SAAB95JD | March 13, 2008 at 5:08 AM
Thanks for an informative article that summarizes VW's problems and lack of direction in the USA. However, I wish the article had mentioned VW quality and reliability, and the dealer network VW has here.
At every auto show I've attended for the last 4 years, VW claims to have turned the quality corner, and after every show, without fail, the quality indicators from CU and JDPOWER report no or little improvement. VW remains far down the quality list.
As for VW dealer network, which seems tiny, under-equipped and better at displaying arrogance than offering customers real products and service, it badly needs revamping.
My 2 cents wrt Audi;
VW should get serious, scale back Audi's entry level vehicles and make Audi a true upscale brand. That might be a better for for the tiny Audi dealer network and will give VW a true "supercar" brand that can run riot with engineering excess for those who can afford it.
Posted by: kurt | March 13, 2008 at 7:23 AM
Very accurate assessment of VW ops in USA. I owned 8 VW's (Beetles, Jetta's, Golf Cabrio's) between 1960 through 2000, but I gave up my loyalty due to poor product quality and reliability with the 90's models. Changing the new Golf to Rabbit is a joke and VW's lack of marketing and options for the current hatchback "Rabbit" is pitiful. Why so much delay for the Golf Gen VI to the USA? Sadly I think VW's future success in the USA has gone the way of Renault and Peugeot.
Posted by: eagle2x | March 13, 2008 at 8:21 AM
I'm glad to see many in the automotive press giving VW good advice. It remains to be see if it will be heeded. I very much agree with the other comments on quality. VW absolutely MUST get ALL of its reliability scores up to "Much Better than Average" in Consumer Reports.
The problem is, in Europe a car is considered reliable if it doesn't leave you stranded. It could be falling apart with every electronic accessory broken, but as long as it starts and drives, it won't be marked down. Here in America, if ANYTHING goes wrong, even a small rattle or a brief check engine light, a car is considered to be unreliable. VW needs to build their cars to American standards of quality.
Also it is very true that the majority of dealers are HORRIBLE. Check out this experience, I've seen it happen many times before. http://forums.vwvortex.com/zerothread?id=3732285
I really hope VW can get back on track. I love their cars, but they have some work to do.
Posted by: Ben | March 13, 2008 at 9:25 AM
While Volkswagen has some lovely products and impressive initial quality, it's the long-term quality and lousy dealership service that scares off potential buyers. The customer service, especially for maintenance and repairs are inexcusably poor and in need of serious upgrades. At the same time, Volkswagen has been slow to replace some of its popular models. In early 2003, VW debuted the redesigned Golf range in Europe, but neglected to bring it over until the 2005 model year. And the Passat became long in the tooth by the time the redesigned 2006 model debuted. The exterior styling has become more generic and less germanic.
On the other hand, I must play devil's advocate. Toyota has $30,000 Camry sedans, $35,000 Avalon sedans, $38,000 Sienna AWD minivans, $40,000 Highlander Hybrids, $45,000 Tundra Double-Cab pick-up trucks, and $55,000 Land-Cruiser SUVs. Yet, Volkswagen is criticized for going up-market. Why the double-standard? Is it the difference in quality between both brands that allows Toyota to go up-scale, but not VW?
Posted by: Jedd | March 13, 2008 at 12:36 PM
Jedd: I get your point about rising prices on Toyotas, but I have an example that I think exemplifies VW's pricing problem in the U.S.
The base price of the cheapest V6-equipped Passat: $36,740 (w/ dest)
The base price of the cheapest V6-equipped Camry: $24,450 (w/ dest)
Posted by: Erin | March 13, 2008 at 3:47 PM
I don't think going upscale is VW's problem. After all, their last sales resurgence in the late 1990's was directly related to their move upscale (when they released the new Passat (Mark 5, B5 platform) and Jetta (Mark 4) in 1996 and 1998, respectively). Remember at the time the interiors (and exteriors, for that matter) were class-leading. In fact, their interiors were arguably better than the Lincolns, Lexuses, Cadillacs, and Infinitis of that time.
VW absolutely offered a unique and stylish value proposition.
That all went down the tubes with their latest Passat and Jetta revisions in the past few years. The latest Jetta and Passat's exteriors are arguably less elegant than their predecessors' and their styling edge diminished greatly. Even GM closed the gap - literally AND figuratively - with exterior styling of their Aura and Malibu midsizers.
But the main reason that VW's US sales have stalled may have to do with the prevalence of catastrophic quality failures of their cars. I don't mean plastic trim falling loose or rattles developing... I mean cars failing to start and run properly. I personally had two friends who owned VWs in the late 90's/early 2000s who eliminated VWs from consideration when they purchased their next cars. (One of them had an apparent lemon Passat that the dealer could never fix after repeated attempts. She could not start the car consistently and the dealer finally gave up and replaced it with a Jetta.)
Posted by: ThriftyTechie | March 13, 2008 at 5:41 PM
I've probably owned 25 VWs of all types from a 1966 Beetle, a 1974 412, Rabbits, Vanagons, all the way up to MK4 Jettas and Golfs, and a New Beetle. Pretty much everything in between, gas and diesel. Currently, there are 2 MK3 Golfs and a "Rabbit" pickup in my fleet. I sold VWs for a number of years and at one point was one of their top salespeople in the country. This base of experience by no means makes me the guru of what is wrong at VW, but I do have some thoughts on the matter which I'll share here for what it's worth.
I attended one of the first unveils of the MK5 Jetta in the US. I was immediately concerned. The MK4 Jetta is really the car that put VW back on the map of the average person in the US as far as sales go. Yes, the New Beetle got the ball rolling, but the MK4 Jetta is what people bought in the 99-05 timeframe. It was a very popular design and lots of the MK4 features were copied by other manufacturers. It was kind of an aspirational car in a way, viewed as a little more upscale and hip car to own than say, a Civic or the like. We sold a ton of them based on an emotional appeal. People liked the darn things. They had to have one. I saw the MK5 car in Chicago and was deeply troubled from square one. First, it had awkward proportions. The front end looked like it did not match the rear half. The chrome grille was too much, too big and gaudy for a relatively small car. I figured I'd give it a chance and drive it. My concern deepened. The engine had an odd note and odd NVH characteristics being a 5-banger. My 1987 Quantum syncro had a 5-pot, and this car reminded me of that one in a small way. Not good. The stereo speakers boomed, rattled, and buzzed in the door panels when any bass whatsoever was applied. The dash was strangely high near the defrost outlet area, making visibility out front a challenge. The new improved doors, featuring removable skins for easy damage repair, made an un-VW-like "boing" sound when closed hard. The electric power steering was OK, but not as good as what I was used to from VW. There were some rays of light--the interior was gorgeous and high quality, for instance.
By this point I was very, very concerned at the "sellability" of this new car. It had none of the sex appeal the public apparently saw in the MK4 car, and a number of what I felt were significant flaws. I tried to shake off my misgivings and get on board with the VW program. I returned home and to the dealership and tried to get behind the cars. I started noticing a trend when current VW owners came in and saw the new Jettas. I'd say the response was 70% negative. Many of the complaints were things I had noticed myself.
Anyway, I eventually decided to go back to college and get out of the car business, not solely but in small part because I realized that as much of a die-hard VW fan as I was ( am ), the company really did not have a clue in many ways in the US market, and was not about to get one soon. I wasn't about to link my fortunes to Auburn Hills.
Speaking to the quality issue, it was a nightmare in many ways. The diesel cars seemed to be pretty decent, but some of the others were awful. Touaregs, for instance, were absolutely terrible. We were so excited about that vehicle when it came out, and later sales people were afraid to sell them. I remember seeing good clients in the shop weekly with Touareg issues that could not be resolved. It got so bad that literally when a customer came in wanting to look at a Touareg, the sales staff was not exactly fighting each other to wait on them. The rationale was that you might make a decent commission selling one, but it was not worth the knowledge that you just doomed someone to a life of misery in the service department, let alone the grief you would endure trying to help them out to no avail. Another debacle that comes to mind was the ignition coil issue which is probably widely known by this point. We had so many stranded customers that we were pulling parts off new cars on the lot to try to keep people on the road because we could not get parts through the proper channels to fix client cars. In the Beetle realm, I remember the first New Beetle Convertibles we sold. You never saw such a happy, excited bunch of people. People were so excited to get those cars that it really made going to work a joy, it was really fun. Fun, that is, until the power tops started failing and there were no parts to fix them. I remember one client in particular who waited for months for a simple micro switch to enable the top to function. Talk about some disenchanted owners! Whew...
Enough on that, just some memories I thought I'd share.
Back to the present. I personally am looking for a small, fuel efficient econo car. Owning 3 VWs currently, and having a love for the brand, I look to VW first. Wait, they have nothing for me to compete with the Mazda 3, Nissan Versa, Honda Fit, et cetera that are on my shopping list. The Rabbit, although attractively priced, gets crummy gas mileage and to get an affordable one I am saddled with a 2-door. I'd live with the 2-door factor just to drive a VW, but regardless, the mileage is so poor in the era of $3.25 gas that it is immediately ruled out. Also, they share many of the shortcomings I noticed at the MK5 Jetta debut, but at least are not as ugly in the front end. Mileage kills it, though, so I rule it out. Having owned many diesels, I'd go that route, but alas, you can't get a Rabbit diesel, or any diesel for that matter, and if you can in a Jetta it is $25-30k. With diesel approaching $4 a gallon here, an efficient small gas-engined car is the ticket for me, but VW has nothing for me.
I had a Mazda 3 as a rental car lately, and my first impression was that VW has taken the mojo VW had in the late 90's and early 2000's and appropriated it for their own. The MK5 cars should have been a lot like this. The car was comfortable, fun to drive, and affordable, plenty peppy, and better mileage than a current ( dowdy and expensive ) VW Jetta.
I don't know, but it seems to me that the guys like Honda are incredibly good at listening to customers and then immediately coming out with a vehicle that meets their wants. VW, on the other hand, seems to spend an enormous amount of energy trying to convince people that what they want is inferior and that what VW is offering is what they should want instead. It seemed like during my tenure being involved with VW they were always coming up with reasons why something customers wanted could not be done, and the Asians are busy finding solutions.
Lastly, in my humble opinion the upscale move was carried way too far too fast. The Touareg and Phaeton were disasters. The W8 Passat is another disaster. Moving your Passat and Jetta lines up a little, fine. Oh, and before I forget, seems like VW, with HUGE Chinese production capacity ( can you say built in cost advantage ) should have leveraged this to export an entry level car to the US a long time ago. They sold a zillion Brazilian Foxes back in the day until the currency exchange made it cost-ineffective. Why not something similar out of China to compete with the econo-Asian cars?
I'll probably be buying my first new car that was not a VW in many years soon, regrettably.
Posted by: ksmo | March 14, 2008 at 7:57 AM
Sorry, should have stated that Mazda has stolen the mojo in the above post, not VW. Sorry for the typo. Should read "my first impression was that Mazda has taken the mojo VW had"...
Apologies. You probably figured it out from the context anyway.
Posted by: ksmo | March 14, 2008 at 8:01 AM
I have to disagree with some of what has been said, mainly considering price point and quality of the newer cars. We own a 2000 Jetta and a 2007 rabbit. When looking for a car, we drove the Matrix, the Mazda 3, the Rabbit and the Subaru Impreza. We ended up with the rabbit because it "felt" the best (My wife had a corolla previously and was not a "vw fan" but the car won her over), and also because comparably equipped it was cheaper than all of the options. Sure the Matrix starts cheaper, but add ABS, and a few other options that are standard on the VW and you are north of 20K. The Mazda was a few hundred more than the rabbit comparably equipped. It is really not fair to compare the base price of the rabbit with the other cars when it comes "base" with a six speed auto with tiptronic, heated seats, six CD changer, ABS, 10 speaker stereo, etc etc. By the way, in real world city and highway driving our rabbit gets 27MPG, and the ratings were that much worse than the matrix or Mazda 3 at that time. The engine is also far from a dog, making 170 lb/ft of torque in lower RPM ranges, making it quick off the line.
With respect to reliability; it is much improved, the facts that we have had no problems with the car (No failures, no rattles etc), and that Edmunds long term jetta also had no issues point to this.
I agree that VW has made some odd choices of late (that mini-van thing, the lack of diesel) but their bread and butter cars are better than they ever were (worlds better than my 2000, which is a really nice car in its own right). As far as the styling of the Jetta, it has a lot of "A4" in it, and as far as it being awkward, so were the mark IIIs.
Posted by: M3M | March 14, 2008 at 9:33 AM
One thing I do miss from the last generation, however, is the "wide open" options list. In 2001 there were 4 engine options: the 2.0, the TDI, the 1.8T and the VR6, so you could get a nice entry level 2.0 (like I did), a $27,000 VR6 GLX, which was a legitimate german luxury car, a Sporty 1.8T for $22,OOO or an economical diesel. One got the sense that it was an up-scale car that had a solid low priced entry level offering, rather than an economy car that was reaching upward. I think the simplified engine choices (1 if you exclude the GLI), and options list of the current model make the car less appealing and less exciting to possible buyers.
Posted by: M3M | March 14, 2008 at 11:09 AM
I have been hearing about the jetta diesel coming out. One of the things we are looking for in our family is a small but reasonably practical high quality car with the best mileage we can find. This will be a third car for us as we already have a 5 series and a honda cr-v. Mileage is a major ingredient.
However, my biggest concern about VW is the quality and reliability. They have been way down in the charts. I also have not heard a lot of positive things from former owners as far as reliability goes. If the jetta diesel comes out soon I may be willing to give the brand a chance. However, a compelling alternative for us might also be the 2009 honda fit which has already gotten great reviews. We shall see.
Posted by: thomas | March 15, 2008 at 10:19 AM
I should add that several of my Co-workers have VW's, and while they like their general design, ride and handling, all of them have been bitten by lack of parts and poor service. None of them plan to buy VW again. Let's hope VW can get its house in order.
Posted by: kurt | March 20, 2008 at 7:07 AM
VW has some great product these days, however it is handicapped by the WORST dealers in the industry. I loved my 06 GTI, but the amount of greif casued by having to deal with their dealers is enough to drive opff many potential and existing customers. I was raised in a family that had VW's...but now we mostly have toyotas(save me) and that says alot.
I have been holding off buying another new car to replace my current cars to see if there was a 25th anniversary GTI that has rumored to be introduced at NY autoshow. I will say that now I expect to be disappointed by the lack of one. I will take my business elsewhere and they will lose another customer.
Bottom line is that they desparately need to improve their act here, get rid of the bad dealers (and there are alot) and get with the program, fix stuff and make VW customers for life, not just one deal wonders.
Posted by: nick | March 20, 2008 at 8:39 AM