Photographer: Akos Stiller/Bloomberg

VW's U.S. Dealers Tell Executives They Need 500,000 Sales a Year

  • Retailers traveled to Germany to meet with top managers
  • Automaker calls talks `constructive,' won't discuss details

Several top U.S. Volkswagen dealers traveled to Germany last week and told the struggling automaker that unless the brand sells at least 500,000 vehicles annually in their market, about 40 percent more than last year, the business is a loser for many retailers.

Three of the dealers delivered that message to Volkswagen AG’s management during several days of meetings last week and company executives didn’t disagree, said Alan Brown, chairman of VW’s National Dealer Advisory Council and co-owner of two Volkswagen stores in suburban Dallas. The executives, including Herbert Diess, head of the Volkswagen brand, conceded that the U.S. operations didn’t provide a good enough return even in 2012 when it sold 438,000 vehicles, Brown said.

“We have to play close to 500,000 cars a year as a new baseline for sales,”
Brown said Monday in a phone interview. “As we go forward, we know that failure is selling 350,000 cars a year both for us and for the company.”

Even a target of 500,000 would show how far Volkswagen has fallen. Less than a decade ago the automaker wanted to sell about 800,000 VW brand vehicles in the U.S. by 2018. The brand’s sales last year fell to 349,440 and were dropping from a year earlier even before U.S. and California regulators said in September that they had caught the company using software in diesel-powered vehicles to cheat emissions tests and banned deliveries of those models.

The dealers told Volkswagen that to grow again, they need firm commitments for more sport utility vehicles, which Americans are buying in record numbers. They got a commitment for a new SUV that will be larger in size than a Jeep Grand Cherokee, Brown said. The dealers also want a compact SUV that is smaller than the current Tiguan.

VW plans to expand its SUV offerings in the U.S. with a new mid-sized model to be produced in Chattanooga, Tennessee, and an additional version of the Tiguan with a longer wheelbase, he said.

Pricing Issue

The U.S. dealers also want lower prices on cars such as the Passat family sedan. Competing cars like Toyota Motor Corp.’s Camry and Honda Motor Co.’s Accord sell four or five times as many.

When Brown and two other dealers left for the meetings last week, one of their key concerns was that Volkswagen would walk away from targets to increase sales rapidly and fall back to its old strategy of selling smaller numbers of cars at premium prices.

Brown said that executives said they would consider reducing prices but didn’t commit to that.

“They were very reserved,” he said, adding that the brand will not raise prices to where they were before it started the mass-market push in 2009.

Back then, its Passat mid-sized sedan had a base price of about $28,000 -- $8,000 more than a like-sized Camry. Now that premium is about $4,000 for comparably equipped cars, Brown said.

If Volkswagen wants to boost sales, it will need to price the cars more competitively, he said. Last year in the U.S., VW sold about 78,000 Passats and Toyota sold 429,000 Camrys.

‘Significant Pillar’

Volkswagen said in an e-mailed statement that the talks with the dealers were “constructive.” The company declined to comment on details.

“Our U.S. dealers are a significant pillar of our business,” VW said. “We take the concerns of our partners in the U.S. very seriously and maintain a permanent dialogue.”

The dealers met with Diess, along with Volkswagen Group of America Chairman Hinrich Woebcken, VW passenger car sales chief Juergen Stackmann and Volkswagen North America sales chief, Ludgar Fretzen.

“They are considering everything to get this back on track,” Brown said.

U.S. dealers have been angry because they invested heavily in new, large stores in hopes of seeing the brand sell 800,000 vehicles a year, the goal set by former Volkswagen AG CEO Martin Winterkorn.

Right Formula

Volkswagen needs to find the right formula in the U.S. for its namesake brand and come up with the vehicles to deliver on that, said Eric Noble, president of CarLab, a consulting firm in Orange, California.

When the brand lowered prices for its U.S. models, the company did so by engineering models that were less expensive and spacious as a Toyota, he said. They stripped out the German engineering that made the cars fun to drive, Noble said.

“They oversimplified what Americans want,” he said. “Now it’s a complete do-over.”

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