VW's Sales Target: Bold or Bull?

I’m not as down on the Routan name for the Volkswagen van as Welch is. Volkswagen has a history of naming problems…God knows…but this isn’t the most egregious example. I nominate the Touareg for that designation. Although, the Bora, which is the European Jetta, comes close.

What I am much more distracted by is the insistence by VW executives that they will sell 800,000 VWs in North America by 2018. I wrote a book about Volkswagen’s comeback from oblivion in the early 1990s, so I feel like I understand the VW culture a bit more than the garden variety reporter.

Volkswagen has proven in the past to be almost obtuse about some things concerning its brand, product selection, sales goals, quality, service, etc. At times, you see examples of decisions where a poll of 20 seasoned executives might say it should go one way, but one at VW’s top says it goes another way, so he wins. It’s a very top down organization when it comes to strategy and important product decisions.

The clearest example in recent years I can point to was the pivot in VW’s marketing around 2003 when it began selling itself as a technology company, ditching most of the good will and hipness it had been developing for about seven years with its Drivers Wanted ad campaign. The reason: to set the stage for higher priced vehicles like the Touareg ($40,000-plus) and Phaeton ($70,000-plus). The thinking was that the Drivers Wanted campaign didn’t have enough gravitas in it to support the pricey new luxury cars.

Many VW executives preferred that the new products had been crossover SUVs priced between $25,000 and $40,000 for VW and Audi instead of the much more expensive models that came.

At the show, I asked some current VW executives (VW of America chief Stefan Jacoby and VW AG chairman Martin Winterkorn) why they are declaring such an enormous (and impossible in my view) sales target of 800,00 cars in North America in ten years. VW sold 230,000 last year. I also asked several former VW executives I stumbled across at the show why they thought VW was setting itself up for a fall.

Jacoby and Winterkorn both told me in their own ways that they were setting up the target so that the whole organization knows what the mission is. It is also to drive the product planning, design and supplier constituencies. They want to pressure the whole system. Jacoby, for example, says that to hit the target, VW will have to not only build cars in North America to achieve better pricing and profits, but products will have to be far more tailored to the U.S. market than VW has done in the past.

One former VW executive now at another automaker, offered the following analysis. “The Germans are deluded to think that everybody is as car-crazy as they are. They aren’t. Especially in the U.S. The U.S. taste in vehicles is much more vanilla than Europe. Volkswagens are terrific cars for people who really like to drive. But that is a niche, not a mass market positioning. At 800,000, you are into mass market territory like Honda. Volkswagen doesn’t know how to do that. They also don’t know how to rid their system of complexity to the point where their quality will rival Toyota and Honda. They are way behind on this. Their factory processes don’t lend themselves to scoring high on quality either. I think the idea of putting this goal out there is a non-starter being made by executives who won’t be at VW to see it through, and they will leave the un-met goals to the people who follow them who will operate with a cloud of unmet expectations hanging over them. It’s a terrible move. Why not just set annual or three year targets, and set them below what you think you can hit, and over-achieve on those.?

Ouch. I also asked executives at Hyundai about the VW stretch-goal. A few years ago, Hyundai’s Korean management put out stretch sales goals for the U.S. of one million sales by 2010. Last year Hyundai sold 455,000.