VW to Lower U.S. Prices in Uphill Battle to Lift Plunging Sales

Volkswagen AG is promising U.S. dealers a wider model range and lower pricing as the automaker tries to broaden its appeal and push the reset button in the world’s second-biggest car market in the wake of record fines and plunging sales.

“We are getting the product we’ve been asking for," Alan Brown, chairman of VW’s U.S. dealer council, said in a phone interview. Volkswagen is also planning to cut the sticker price on cars to boost sales and “is looking at this with a volume mindset,” Brown said.

VW told dealerships about the shift to a more mass-market strategy for the brand as part of a settlement to compensate them for losses incurred from the emissions cheating. VW on Thursday agreed to pay 652 dealers about $1.2 billion, a person familiar with the matter said. The German automaker said it will make cash payments and provide additional benefits to dealers to resolve their claims, without providing any details.

While VW’s U.S. sales have fallen off a cliff this year, its troubles gaining traction in the market predate the scandal. Dealers have been pushing the automaker for years to extend the U.S. model offerings and build vehicles with less features that can then be priced more competitively. After opening a factory in Tennessee to build a stripped-down, larger version of the Passat for Americans, the carmaker didn’t follow that with additional cars.

The failures show in the sales. Although the namesake brand accounts for more than 10 percent of all cars sold in Europe, its U.S. market share has dropped to 1.7 percent. VW brand’s sales fell almost 14 percent through July, even as industrywide deliveries rose 1.3 percent, according to researcher Autodata Corp.

Volkswagen’s U.S. woes stem from struggling to offer the kinds of cars that Americans want to buy. Its SUV lineup consists of two vehicles, neither of which are well-suited to the U.S. The compact Tiguan is generally too small for Americans, while the five-seat Touareg is expensive, starting at about $50,000. That’s almost $20,000 more than the Hyundai Santa Fe, Toyota Highlander and Ford Explorer, all of which can seat at least seven passengers.

VW has also not followed the practice in the U.S. of updating vehicles annually with minor alterations to draw in customers to the new model year. In Europe, automakers typically overhaul their cars every seven years, with a modest facelift in the middle of the cycle.

Dealers are miffed because they have invested heavily to build new, large stores after former Chief Executive Officer Martin Winterkorn vowed to lift the VW brand’s annual sales in the market to 800,000 by 2018. The marque last year sold 349,440 vehicles in the market.

“Volkswagen is facing an uphill battle to revive the brand in the U.S.,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. “Volkswagen is struggling with the loser image of the past, and now in the present the brand is burned. They need a good story that assures people it’s really a new start. Just adding another SUV won’t do it.”

The settlement on Thursday ends a lawsuit from auto dealers and resellers who sued VW in the wake of the diesel scandal, alleging fraud and false advertising. The agreement, which raises the amount VW will pay to resolve U.S. lawsuits to $16.5 billion, removes one obstacle for the carmaker as it seeks to repair its tarnished reputation. While the automaker has already settled with car owners and regulators, VW still faces investor claims and possible criminal charges. VW also doesn’t have an approved fix for the 562,000 rigged diesel vehicles still polluting U.S. roads.

“The dealers are VW’s front line in this matter, so getting them compensated is critical,” Rebecca Lindland, a senior analyst for Kelley Blue Book, said in an e-mailed statement. “Not only do they represent the company to the owners, they’re also impacted financially since they’re hamstrung on what products they can sell.”