After Scandal

VW Bounces Back in the US

VW US Sales rebound
Headed up: sales of VW's new SUV line are a hit in the US. Source: VW USA

At Bobby Beck’s Lewisville Volkswagen not far from Dallas in the heartland of Texas, VW vehicles are once again flying off the lot after a two-year downturn. “Everything is just taking off,” said sales associate Heather Zebrowski-Reid.

VW’s turnaround is not just in Texas, but across the American market. The reason is the company’s big bet on sports utility vehicles aimed at the mass market in the United States, especially what are known as “crossover” vehicles, which are light trucks built on a car platform.

According to the latest sales figures for VW, the company sold 27,732 vehicles in October in the United States, a 11.9-percent increase compared with October 2016. For the year ending in October, sales were up 9.4 percent. In comparison, General Motors, Ford and Chrysler sales for the same period were down and Honda and Toyota sales were flat.

“One of the things really helping VW right now is a lot of people want these crossovers.”

Matt DeLorenzo, managing editor, Kelley Blue Book

Interestingly, VW car sales, excluding trucks and SUVs, were also down nearly 12 percent in October, underscoring just how important the emphasis on SUVs has been for the company in North America. VW now has three SUV offerings: the Tiguan, which is made in Mexico; the Touareg, which is made in Slovakia; and the newest entry, the Atlas, which is made in Tennessee.

“One of the things really helping VW right now is a lot of people want these crossovers,” said Matt DeLorenzo, managing editor for Kelley Blue Book, the standard price guide in the car industry. “If you look at their growth, it’s coming from the truck side of the ledger.”

Still, this year’s sales figures of 280,200 through October are down from 2014, when the carmaker sold 407,000 cars in the US. Some 25 percent of those sales were diesel cars and in the following year the company pleaded guilty to charges that it used doctored software to cheat on emission tests. VW paid $16 billion in fines to the US government and sales slumped as dealers were forced to repurchase diesels. The scandal continues to haunt management, with a German court ordering the firm Wednesday to open its records to show which executives knew about the emissions cheating.

“What people were calling the diesel scandal really did hurt us,” recalled Lewisville’s Zebrowski-Reid.

To overcome lingering doubts about the VW brand after the diesel scandal, Mr. Woebcken introduced a six-year or 72,000-mile warranty that is not only twice as long as rival firms offer, but it is transferable to a used car buyer.

The carmaker took several other decisions to regain market share in North America. VW USA was given decentralized control over the region with complete freedom to plan models, choose names, and market the cars independently from headquarters back in Wolfsburg, Germany. Presumably they won’t name any more cars after the nomadic Tuareg tribe in the Sahara desert or with a combination of tiger and iguana to make Tiguan.

“A key part of our strategy for 2017 and beyond begins with rebuilding the trust of our customers, dealers and employees,” Hinrich Woebcken, the new CEO of VW USA, said at a product launch in September. “We are at a fundamental turning point for the brand and our strategy for our American customers.”

Another decision was the plan to sharply increase the SUV line in the US with a new, three-row Tiguan and the Atlas, a car designed and manufactured in the US.  “The focus on the light trucks is a big win for VW because they are appealing to a much larger slice of the market than the diesel segment, they are a new player and people are willing to give them a chance,” said Kelley Blue Book’s Mr. DeLorenzo. He said the new Atlas has special appeal because “it has a very European feel but is priced as a mass market vehicle.” Atlas models retail for about $30,000.

Mr. DeLorenzo said VW was smart to focus on the mass market segment. Even though there are several established brands there, including the Ford Explorer and the Honda Pilot, the mass market accounts for half of overall car sales. Meanwhile, luxury brands like BMW and Mercedes are suffering a decline in SUV sales because the top end of the market has become saturated, with Jaguar and Alfa Romeo only the latest entrants challenging the German dominance of that sector.

VW’s Audi subsidiary, although also considered a luxury brand, is doing well by focusing on being the high-tech alternative to BMW and Mercedes, Mr. DeLorenzo said. Meanwhile, Mercedes and BMW have doubled the number of cars they are offering in the segment. “If you look at the model proliferation on the truck side of the luxury ledger, it’s incredible,” he said.

Charles Wallace is an editor for Handelsblatt Global in New York. To contact the author:  C.Wallace@extern.handelsblatt.com.

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