Volkswagen U.S.’ Biggest Problem: Metal to Move
April 03, 2008

By Bill Visnic

WASHINGTON, D.C. — Sure, Volkswagen Group of America is concerned about the debilitating dollar-euro exchange rate, which almost daily shrinks its profit margin on vehicles built in Europe and sold for U.S. dollars.

But new Chief Operating Officer J. Mark Barnes’ biggest concern is having enough metal to move. Barnes said dealers are practically rioting for more product. Anything will do.

The situation may turn around quickly for VW, which last month was one of the few automakers to enjoy a sales gain; VW pounded out a thrilling 12.9 percent sales increase in March and also is in rare company in that, through the first quarter, it is slightly exceeding last year’s sales — despite a seriously eroding U.S. sales environment.

A Gush of New Models
Barnes — on the job at VWGA just five months after five years at Hyundai Motor America and 18 years at Nissan North America Inc. before that — said a gush of new models this year, including the relaunch of VW’s popular TDI diesel engine, may help dealers keep their trend-bucking sales momentum.

Coming double-time to VW dealers:

• The Jetta Sportwagen, which the automaker introduced to the press here and which goes on sale shortly.

• The Tiguan compact crossover, hitting showrooms in May.

• The return in August of the TDI diesel for the Jetta lineup, now upgraded and emissions-compliant in all 50 states.

• The Routan minivan, later this summer.

• The Passat CC, the sinuous “4-door coupe” variant of the Passat midsize sedan, also coming later this year.

Sobering Exchange Rates
But for VW, there’s a sober footnote to boosting sales: the exchange rate chews into the profit from every incremental sale.

Nonetheless, Barnes said the parent company “has been very good about setting the right price for the vehicles,” saying the Volkswagen’s commitment to the success of its VWGA unit is demonstrated by sticker prices that are not being inflated to recover exchange-rate losses.

Barnes said the long-term solution is the new U.S. assembly plant the company has admitted it will build, although it remains noncommittal on the location, supposedly to be announced later this year.

The new assembly plant is vital to VW’s ambition to sell 800,000 vehicles in the U.S. by 2018 (2007 total: 230,572). The company’s Puebla, Mexico, assembly plant — which makes the New Beetle and Jetta, as well as a few other models in low volume — has for several years been cranking to its capacity of around 470,000. So Puebla is in no position to offer its northern sales arm anything extra to put on the showroom floor.

Barnes said VW’s new assembly plant will have similar capacity to Puebla.

VW’s surprising sales growth is fueled by its “Sign and Drive” lease campaign, “a very well-received program,” said Barnes, coupled with a $1,000 minimum-trade deal for existing VW customers — both   
of which, he said, are low-cost incentives.

Some of VW’s upswing might also be attributed to the brand’s reputation for economy. But the Rabbit, VW’s entry model that competes with fuel-sipping market stalwarts such as the Honda Civic and Toyota Corolla, was one VW model to show a sales slide last month — although Rabbit sales are up 10 percent so far this year.

Barnes again cites availability as the fly in VW's ointment; the Rabbit is immensely popular in Europe (as the Golf), so battling European demand and the unfavorable exchange rate leaves scant supply of Rabbits for the U.S.

“If we could get more, we could sell more,” said Barnes.

That may be VW’s lament for much of this year, but one many competitors would be delighted to recite.•

Bill Visnic is a senior editor of Edmunds’ AutoObserver, specializing in product and technical areas. He was senior technical editor at Ward's Automotive Group.

Photos by Volkswagen
1 - Volkswagen Jetta SportWagen
2 - Volkswagen Tiguan

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