Volkswagen Faces Big Problems In the U.S.

July 31, 2014
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"The U.S. is a case of disaster." So said Bernd Osterloh, Volkswagen board member and VW’s works-council chief while discussing his company’s failure to crack the U.S. market the way it said it would several years ago, when VW blurted out its ambition to be the largest carmaker on earth by 2018.
To climb that mountain, in addition to continuing to rack up significant numbers in Europe, China, and South America, Volkswagen was going to have to step up its U.S. game like never before and notch 800,000 sales a year. Which was a long way from the 569,696 units sold here in 1970, its best year ever, and longer still from the 213,454 the brand shifted in 2009.
Things moved in the right direction, initially. With the arrival of new value-priced Passats and Jettas, a new plant in Chattanooga, and an apparent renewed commitment from the home office, Volkswagen of America saw sales above 400,000 in 2013, more than 100,000 of them diesels. That’s a record rate for VW oil-burners and pretty cool, except that overall sales had fallen 7 percent from 2012, with a particularly bad December, down 23 percent, undergirding an annual market-share decline of 13.3 percent and pointing to a larger problem -- halfway to its target, VWoA’s growth stalled.
The folks back home knew there was trouble. Hence the hasty departure of Volkswagen of America CEO Jonathan Browning -- a Brit -- last December. Hence Osterloh’s harsh words, and hence the unusually self-critical position of scapegoat Browning’s German-born replacement, Michael Horn, who called for better understanding of the American market by the parent company. Horn wasn’t going out on a limb with his critique. As VW’s hereditary overlord Ferdinand Piëch acknowledged to Bloomberg News, “We understand Europe, we understand China, and we understand Brazil. But we only understand the U.S. to a certain degree.”
Right he is. There’s general agreement around Volkswagen -- and the U.S. automotive press and the gearhead community—that when it comes to this country, VW needs to get a clue. Unfortunately, recent indications of its idea of what that clue might be -- me-too SUVs and possibly even a pickup—make me wonder, as does the firm’s seeming inability to fully commit to its one plant on U.S. soil. VW has never adequately explained how it is going to hit its target or utilize the king-size space it got from the state of Tennessee, and this reporter, for one, doesn’t believe that the three-row, seven-seat CrossBlue SUV of 2016 is going to close the books on those questions. When it arrives, it will be not a moment too soon—rather more like ten years too late. It will have nothing to do with VW’s core values and no particular relevance.
I wish the nice people at Volkswagen of America the best. So when they invited me recently to drive the new 2015 Volkswagen Golf, I was happy to accept. It’s a fine car, and if it seems that little bit bigger, as well as more anodyne and cost-cut, it also promises to be attractively priced now that it’s built in Mexico. Still, it isn’t expected to be a huge seller; even a doubling of U.S. sales, as some predict, would add only 30,000 units to Volkswagen’s annual totals.
Volkswagen ought to set its sights higher and market the Golf harder. It should also think smarter about how to make it in the United States. Why not try building superior small cars, the way it made its name in the first place? VW builds cars one (Polo) and two (Up!) sizes smaller than the Golf in Europe. Why not at least bring us the next Polo, which will surely share the MQB architecture and could be built alongside the Golf in Puebla?
When I spoke to Horn in January, he insisted that the demand for small cars here is uncertain, the solid success of the supply-constrained Honda Fit and Chevy Spark notwithstanding. He said when demand was clear they’d address it then. He seemed more enthusiastic about the pickup-truck idea. Frankly, if the first Volkswagen guys to land in America in 1949 had wanted to follow instead of lead and actually waited for an invitation to sell a slow, noisy, ill-handling, air-cooled, rear-engine subcompact, it would have been a disaster. So, hey, Volkswagen. As you once said, think small.

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