Volkswagen’s operations in this country would make a fascinating case study for the graduate students at Harvard Business School.
VW, which has made no secret of its corporate goal of being the world’s No. 1 automaker, seems to be perpetually trying to figure out the American market.
For years, its US dealers have complained about competing with one hand tied behind their backs: The company hasn’t offered a midsize SUV, one of the segments that drives both sales and profits for VW’s competitors.
So it was no surprise when the announcement came down from Wolfsburg, VW’s global headquarters in Germany, that a midsize SUV was coming our way in late 2016.
VW plans to invest approximately $900 million in the project, and the SUV will be built at the company’s Chattanooga, TN, plant that’s been assembling the midsize Passat sedan.
“The Chattanooga-built midsize SUV will allow us to fulfill the wishes of our dealer network, bringing new customers to our showrooms and additional growth for the brand,” says Michael Horn, president and CEO of Volkswagen Group of America. “We’re eager to be entering this growing vehicle segment with a world-class, seven-passenger SUV from Volkswagen.”
The message imbedded in this announcement is that VW is finally ceding some control of its North American operations to its US managers.
Horn replaced Jonathan Browning as US CEO this year after VW’s US sales fell in 2013 after doubling (to 440,000) in a three-year period.
Browning’s mandate is to have VW reach its goal of 800,000 in annual sales here. To achieve that, gains primarily will have to come in four segments: compact and midsize sedans, a compact SUV, and the new midsize SUV.
The sedans already are here with the recent redesigns of the Jetta and Passat. In addition, the Sportwagen hatchback soon will reappear as a Golf.
“Worldwide, the Golf is one of VW’s best known names,” says Brian Heney, director of operations for the Kelly Motor Group, which includes Kelly VW in Danvers. “You know Volkswagen will be capitalizing on that.”
Now it’s time for the SUVs.
The new midsize vehicle is based on the CrossBlue concept vehicle first shown at the 2013 North American Auto Show in Detroit.
Car and Driver predicted last fall that engine choices would include a V-6, a hybrid, and a TDI diesel, which projects to be a good selection for the US market.
It may have a new name by the time it arrives in showrooms. “Many times the concept name isn’t the final product name,” says Heney. But it will be welcome by any name.
However, the new vehicle will have to crack a segment that includes top-sellers such as the Toyota trio (Highlander, Venza, 4Runner), Ford Explorer (and Edge), Jeep Grand Cherokee, Nissan Pathfinder, Hyundai Santa Fe, Mazda CX-9, Buick Enclave, Chevrolet Traverse, Hyundai Santa Fe, and Kia Sorento.
“I’m sure it’s going to be a topnotch vehicle in terms of fit-and-finish, performance, handling, and overall quality,” says John Wolkonowicz, an independent automotive analyst with extensive industry experience.
VW’s problem, to Wolkonowicz, is a persistent perception that its vehicles have reliability and durability issues as reflected in a below-average result in June’s J.D. Power reliability report. In contrast, they’re at the top of the ratings in Europe and other countries.
“I think that’s what has been holding VW back,” says Wolkonowicz. “At Wolfsburg, they’d scratch their heads and say to themselves, ‘We have an excellent product. Why can’t we sell it in the US?’ ”
The truth, he says, is that VW is building really neat cars these days. “They have timeless design, something you can’t say for all manufacturers. They have high quality interiors. And they ride and handle well because they have superb chassis design.”
It’s not that those J.D. Power surveys are wrong. Instead, says Wolkonowicz, it may be that the problem is with American drivers.
“Americans beat on their cars,” says Wolkonowicz. “In most other countries, people take care of their vehicles. They change their oil and do scheduled maintenance, slow down for railroad tracks, and try to avoid potholes. We Americans are more ham-fisted in the way we drive.”
That may be changing a bit, at least locally.
At Kelly Volkswagen, the largest VW dealership in New England, and the Kelly Group in general there has been strong growth in customers having their vehicles serviced at the dealership.
“With the average car on the road now 11 years old, it pays to have the right maintenance done, and those visits also present an opportunity for customers to see the latest offerings,” says Heney.
“Our new VW facility itself attracts attention,” says Heney. “While sales are down nationwide, our VW sales are up substantially. There are a lot of VW drivers around here.”
Heney has high hopes for the new midsize SUV and says that VW has indicated it will redesign the compact Tiguan SUV soon, too.
“That’s something that [CEO] Brian Kelly has been pushing for two years now,” says Heney, “and VW has indicated strongly that a redesign in the works.”
A redo of the compact Tiguan SUV also will be imperative to make it competitive in the US market where there are a dozen solid choices, including the Honda CR-V, Toyota RAV4, Ford Escape, Nissan Rogue, Mazda CX-5, Subaru Forester, Chevy Equinox, GMC Terrain, Hyundai Tucson, Kia Sportage, Mitsubishi Outlander, and Jeep Cherokee.
“The present Tiguan is too small, including interior volume, costs a bit more than its competitors, and isn’t as fuel efficient. You can be sure VW will address all those issues in the new model,” says Wolkonowicz, the industry analyst.
Then the job will be to spread the word.
“VW has a history of terrific advertising campaigns,” says Wolkonowicz. “Now their challenge is to educate the American consumer about their cars’ quality.”