Volkswagen has ambitious plans to directly challenge Toyota — and a cornerstone of the plan for global expansion is to boost sales in the U.S. by building products with more American flavor.
The plan calls for the company to grow from 6.2 million sales worldwide in 2008 to 10 million cars by 2018, with American sales climbing to 800,000 cars a year.
To accomplish this, VW hopes to expand the appeal of products outside its current base of European car enthusiasts, attracting more of the shoppers who reflexively buy Toyota Camrys and Honda Accords today.
This means making cars that are bigger, but less expensive than today’s models, and expanding the model line into additional segments, such as seven-passenger crossover SUVs, where the company does not participate today, said Stephan Jacoby, president of Volkswagen Group of America.
“We believe that the brand has a fantastic foundation to grow into segments where we are not present right now and where we are not competitive right now,” he said.
VW said it will be building more of its models in the NAFTA trade zone, with an emphasis on U.S. production, he said. The company plans on assembling the cars in its new Chattanooga, Tenn. plant beginning in 2011. It also plans on building 85 percent of the vehicles in North American.
“We want to have U.S. suppliers, we want to be local here, we want to be good citizens, and we want to understand the market better than we do today,” said Jacoby.
This means that the company’s suppliers can be located close by the assembly plants, cutting transportation costs, simplifying logistics and insulating Volkswagen from currency fluctuations. “That is the key to offering a VW at a price that is competitive against mainstream American and Asian competitors,” Jacoby observed.
The company has already announced plans to build a mid-sized family sedan in the Chattanooga plant and to build a larger compact replacement for today’s Jetta model. The unnamed mid-size car will sell alongside the Passat, which will continue to be imported for those buyers who want their German engineering straight up, not diluted with the extra elbow room and Americanized amenities of the new models.
Today’s Volkswagens have unorthodox design features on sunroofs and seat recliners — differences which appeal to the sense of individualism in VW’s core enthusiasts but which result in lower J.D. Power quality score from newcomers to the brand who are confused by their operation.
VW’s adopt to the industry-standard approach to such controls for new mainstream models, said Jacoby. But he adamantly insists that such future models will nonetheless retain their Teutonic feel. “The new cars will be tailor-made for this market, while still being Volkswagens in their essence,” he declared.
Some observers are skeptical that it is possible to attract new customers by making Volkswagens more like Toyotas without losing the characteristics that appeal to current customers. “Lowering the costs will certainly make them more attractive, but at what cost to current VW fans?” asked Jon Linkov, managing editor for autos at Consumer Reports. “Making a Jetta more Camry/Accord like will certainly not make the repeat VW buyer happy, I feel, and I don’t know if they will be able to cover those losses and bring in more people.”
Volkswagen seems determined to rip a page from Honda’s playbook, unabashedly describing its plans to simplify its option lists into “Honda-like” trim levels with no factory-installed options, as well as adding new models such as the crossover three-row SUV described with the shorthand label, “Honda Pilot fighter.”
The company will also exploit its legendary image among small car buyers to join the minicar segment, with a larger, Americanized version of the next generation edition of the popular Polo minicar currently sold in Europe.
The company also plans to remain in the minivan market, where customers are largely unaware, or unconcerned, that the company sources its “German engineered” minivan from Chrysler LLC. While the minivan market has collapsed to half its previous sales level, minivan customers rate highly in loyalty and they are sufficiently pleased with the Routan for the van to rank second in the latest J.D. Power customer satisfaction survey.
Even in its shrunken state, the minivan will continue to be one of the top ten market segments in the U.S. for the foreseeable future, said Toscan Bennett, vice president of product strategy. For 2010 Volkswagen has revamped its complicated options list for the Routan to seven trim levels, each designed to directly correspond with a Honda Odyssey trim level for the sake of direct comparisons of the two by consumers, he said. Bennett predicts the move will contribute to Routan sales swelling from the 11,000 sold so far to 20,000 for model year 2010.
Largely overlooked in recent years is the New Beetle, a car which attracted many shoppers into VW showrooms when it appeared a decade ago. But that car languished without the necessary support of upgrades and an expanded model line, upkeep that was needed to cultivate the Beetle into the kind of lifestyle brand that the Mini Cooper has become.
“We’ve missed the opportunity to create the brand and build up the cult of ‘Beetle,’ ” Jacoby said. Now the company aims to make up for lost time, starting with a new New Beetle in a couple years. From there, Volkswagen will try to expand on the basic sedan and convertible variants that comprise the current Beetle model line, much as the original car spawned variants such as the sporty Karman Ghia, boxy Thing proto-SUV and oddball Squareback sedans and wagons.
Mini is doing the same thing today, with the initial hatchback, followed by a convertible and the Clubman mini-wagon. The company will introduce a tiny coupe version at the Frankfurt Motor Show later this month.
While Volkswagen will apply its simplified Honda-style no-options approach to the Beetle too, it will offer dealer-installed options to let buyers customize their Beetles in the same way that Scion dealers do, Jacoby reported.
This revitalized and expanded Beetle family will help reestablish Volkswagen’s brand identity with mainstream consumers, and the company plans to continue to import some of its European models to cater to enthusiasts. The Tiguan compact crossover SUV will probably be replaced by a domestically built model, but models like the Passat and GTI will still be available for those customers who want undiluted German cars.
The company is considering production of its racy Bluesport concept diesel sports car, and plans to reintroduce the pricey Phaeton luxury sedan in the future, said Bennett.
Volkswagen’s efficient diesel engine technology will also continue to help set its cars apart from gas-powered competitors, Jacoby promised. While the cost of diesel powertrains does not approach the $6,000 level mentioned by competitors, Jacoby asserted, the cost can be reduced to closer to that of gas powertrains if the company can convince its suppliers to locate plants in the U.S. to support local assembly of such engines. “If diesel technology would be localized here, diesel technology would be competitive in cost,” he said.
Obstacles to success include Volkswagen’s reputation for spotty quality and the poor customer satisfaction levels of its dealers, but the company said that it has already moved to address these problems. Improvements in component quality and revised designs have contributed to a 50 percent reduction in warranty costs in the last two years, Jacoby said, which he cited along with rising initial quality scores as evidence that the company is building more reliable products.
“Reliability of VWs really has been a sore spot,” observed Linov. “The new versions of the Jetta and Golf lines have been average or better recently, which is a good sign,” he said. “But some legacy models, particularly Touareg, are troublesome.”
Likewise, its dealers have earned poor marks for customer satisfaction, so Volkswagen has created teams that visit low-scoring dealers to evaluate their operations and recommend ways they can improve to make their customers happier. The program is not mandatory, but experience shows that “there is a strong correlation between dealers who understand customer satisfaction with profitability,” Jacoby remarked.
Jacoby revealed that he was one of the architects of this vision for Volkswagen’s U.S. operations when he worked at the company’s Wolfsburg, Germany headquarters. The company was evaluating its operations in the U.S. because it was losing close to a billion dollars every year from the U.S. unit.
Jacoby was shocked when, after he helped develop the “localize and expand” strategy, he was tapped to move here to execute the plan. One of his first moves was to relocate the company’s U.S. base from suburban Detroit to the suburban Washington, D.C. town of Herndon, Va.
With such personal involvement in the turnaround strategy, it would seem that Volkswagen’s grand plan for the U.S. is potentially vulnerable to the vagaries of changing personnel, but Jacoby says it is his aim to see the plan through to fruition.
“I hope I will, I like it here a lot,” he said. Jacoby lives in tony Georgetown, in D.C., with his wife and baby, and recently entertained his extended family from Germany on Maryland’s Chesapeake Bay. “This is a beautiful area,” he remarked. It could be that Volkswagen’s boss will become as Americanized as the mainstream products he envisions for this market.