- Sudden departure of top executive in America fuels concerns
- `They don't have a single product people will pay premium for'
The suggestion was startling: Maybe VW should give up on selling cars to America’s masses.
It was late January, at the Detroit auto show, and Herbert Diess, the global chief of Volkswagen AG’s namesake brand, was sounding out U.S. dealers as the company grappled with the biggest crisis in its modern history. Perhaps, Diess wondered aloud, VW should stop trying to compete with the likes of Toyota Motor Corp. in America and go back to focusing on higher-end models.
“It was near crickets in the room,” said Alan Brown, chairman of VW’s U.S. dealer council.
After stunned silence came anger, Brown said. He and 11 other dealers are heading to company headquarters in Wolfsburg, Germany, next week to tell executives they fervently oppose throwing in the towel on the mass market. They want the company to stick to the commitments it has made for new models and keep U.S. prices where they are now.
Diess’s trial balloon underscores how VW is struggling to regain its footing in the wake of the diesel-emissions scandal, which sent sales plummeting. Returning to the days when it was a boutique brand in the U.S. -- more like Subaru or Mazda -- would be a turnabout by a company that aimed to more than triple sales in the country and overtake Toyota as the world’s largest and most profitable carmaker. It would also be an admission that the VW reputation is so damaged that it simply can’t go head-to-head with the biggest players in the world’s most lucrative market.
At a minimum, the lofty U.S. sales targets set by former CEO Martin Winterkorn are under review and could be gone. Diess wants to focus on improving pricing and profits with better sport utility vehicles, instead of chasing big numbers, said a person familiar with the matter. Volkswagen hasn’t firmed up a plan to return to the premium price strategy in the U.S., the person said.
For the more than 600 VW dealers in the U.S., it would be a disaster, Brown said. “We’ve got to be a real brand -- and that means you have to go after sales volume. Anything else will be unacceptable.”
Volkswagen of American spokeswoman Jeannine Ginivan declined to comment on the possible shift in strategy.
The automaker was caught last year cheating on California and U.S. emissions tests for its four-cylinder diesel engines. Winterkorn resigned, and VW is facing lawsuits and massive fines. It’s yet to come up with a solution to bring its diesel cars into compliance.
The sudden departure Wednesday of Volkswagen of America Chief Executive Officer Michael Horn -- who drove the mass-market push -- fueled concerns that a complete shift in U.S. strategy might be gathering steam in Germany, said Brown, co-owner of two VW dealerships in suburban Dallas.
He said dealers want Volkswagen to stick with its current blueprint, and keep prices low enough for mainstream consumers. Dealers invested a lot in their showrooms and need bigger sales volume to make a profit on their bigger, more expensive stores, he said.
The National Automobile Dealers Association said in a statement Thursday the brand has been “severely damaged” and dealerships have been hit hard. “A critical step in this recovery will be for VW to honor the future product plan that Mr. Horn and VW dealers fought vigorously for,” the trade group said.
When VW was gearing up for its mass-market push, its Passat mid-sized sedan had a base price of around $28,000 -- $8,000 more than a like-sized Toyota Camry. VW sold 11,000 Passats in the U.S.; Toyota sold 350,000 Camrys. But Volkswagen hadn’t been looking for big numbers. The emphasis had been on engineering and driving performance, and the sticker prices meant the cars weren’t for everyone.
Then Winterkorn set a sales goal of 800,000 vehicles by 2018. He spent $1 billion on a plant in Tennessee that would make less expensive models with nonunion workers. The Jettas and Passats weren’t as snazzy, but they had a different mission. “We have to bring the masses to VW,” Mark Barnes, the company’s then-chief operating officer in the U.S., said in 2010.
It seemed to work for a while, with sales going from 213,454 in 2009 to peak at 438,133 in 2012. Last year, they were already slipping when the emission scandal broke, and they finished down 5 percent at just under 350,000.
The brand has taken many turns in the U.S. In the ’60s and ’70s, the company sold hip Beetles and Buses for cheap. Next came the higher-quality, fun-to-drive era, backed by the Fahrvergnugen -- German for “driving enjoyment” -- ad campaign of the ’90s. VW enjoyed cult status through the 2000s, said Eric Noble, president of CarLab, a consulting firm. In 2005, when former Chairman Ferdinand Piech was still in charge, VW even tried to move into the luxury market with the Phaeton sedan -- priced at $85,000.
Now, after aiming for the masses, VW would have trouble turning back to boutique status, Noble said. “They have already eroded their ability to charge premium prices. They don’t have a single product that people will pay a premium for.”
Many dealers used to have small showrooms, or shared space with Mazda dealers. The investment in the plant and promise of lower price points persuaded dealers to build bigger lots and nicer showrooms, Brown said, estimating they collectively spent more than $1 billion sprucing their shops up.
“Volkswagen dealers don’t want to sue,” Brown said. “But if you take away our future, on top of you plugged us with a bad name with this EPA scandal, it’s a double cut. We have no choice. We have to take action.”