Volkswagen Plans to Expand SUV Offerings to Gain Ground in U.S.

Volkswagen AG plans to expand its portfolio of sport-utility vehicles to gain ground in the U.S. on Toyota Motor Corp. and General Motors Co.

“We will be looking to really grow, particularly in the compact SUV segment,” VW’s U.S. chief Jonathan Browning said in a phone interview yesterday from the unit’s headquarters in Herndon, Virginia. “Over time, I think there’s also scope for growth in terms of a larger SUV within the portfolio.”

VW, Europe’s largest carmaker, currently has two SUV models, the full-size Touareg and compact Tiguan. VW sold 20,946 Tiguans in the U.S. in 2010 and 4,713 Touaregs. Carmakers delivered 3.3 million SUVs in the world’s second-largest auto market last year, 29 percent of all vehicles sold in the U.S. Honda’s CR-V model was the most popular, generating sales of 203,714, according to Ivan Drury, an analyst at Edmunds.com.

VW aims to triple U.S. sales to 1 million vehicles by 2018, with the Audi luxury unit making up 20 percent of the total, as part of an effort to overtake Toyota as the world’s largest automaker. VW will open a factory in Chattanooga, Tennessee, by April and start delivering a new mid-sized sedan built at the plant in the third quarter, Browning said.

VW’s preferred shares rose as much as 1.60 euros, or 1.3 percent, to 127.35 euros and were up 0.4 percent as of 3:05 p.m. in Frankfurt. The stock, which has more than doubled since the beginning of 2007, gained 86 percent last year, the best performance in Germany’s benchmark DAX index.

U.S. Laggard

VW needs more offerings to catch the U.S. volume leaders. VW, including Audi’s deliveries, sold 358,500 vehicles in the U.S. last year, lagging GM’s 2.22 million, Ford Motor Co.’s 1.97 million and Toyota’s 1.76 million.

“VW is simply not a player in the American SUV segment,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch- Gladbach, Germany. “Their models aren’t being recognized as sufficiently competitive.”

Browning, a former GM executive, said a new mid-sized sedan, VW’s first car built specifically for the U.S., will account for “approximately the same proportion” of future sales as the Jetta compact, the company’s best-selling U.S. model. Jetta sales contributed half of the VW brand’s 2010 deliveries. VW will unveil the sedan in Detroit on Jan. 9.

“We’ve got plenty of ideas in terms of new product entries,” Browning said. “It’s very important that we build a balance of our product portfolio in the U.S.”

Quality ‘Deficiencies’

Browning, who joined VW last June, took over as president and chief executive officer of Volkswagen Group of America on Oct. 1. Predecessor Stefan Jacoby left to become CEO of Volvo Cars, the Swedish automaker owned by China’s Zhejiang Geely Holding Group Co.

Volkswagen’s U.S. division faces “some deficiencies” on vehicle quality and customer satisfaction, Browning said. VW, which ranked below GM and Toyota in the 2010 initial quality study by J.D. Power & Associates, said Dec. 15 it was recalling 377,286 cars in the U.S. for fire risks from fuel-supply lines that may chafe and leak.

“We’ve been putting a lot of work in with the broader organization to address how we manage quality in the customer experience,” Browning said.

The German manufacturer will continue to target outpacing the U.S. auto market’s growth, the executive said. VW brand sales increased 20 percent last year to 256,830 units, beating an 11 percent market gain.

The U.S. has been Volkswagen’s Achilles heel in recent years with the last annual profit dating back to 2002. Chief Financial Officer Hans Dieter Poetsch said July 29 that U.S. operations may not be profitable again until 2013.

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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