How will Volkswagen sell 1 million cars a year in the U.S.?
Jonathan Browning, chief executive of Volkswagen Group of America, has tough marching orders from his German bosses back in Wolfsburg: Sell 1 million VWs and Audis annually in America by 2018.
It’ll be quite a challenge, even though the company is having a banner year. Bolstered by its redesigned Jetta compact sedan and a new Passat that’s being built at the company’s new factory in Chattanooga, Tenn., VW sales are up 24% so far this year, more than double the overall industry. Audi sales are up nearly 17%.
In all, VW is looking at selling a little more than 400,000 vehicles in the United States this year, which means the automaker would have to more than double sales to reach the target in six years.
Just getting this far has been a struggle. Lead by VW’s iconic Beetle, the automaker peaked with U.S. sales of 569,696 vehicles in 1970. Quality and reliability issues then tripped the company, and VW nearly exited the market.
Now it’s up to Browning, who joined VW after stints at General Motors Co. and Ford Motor Co., to restore the brand and grow sales.
He talked about VW and its plans during a visit to the Los Angeles Auto Show, which continues at the Los Angeles Convention Center through Sunday.
What’s behind the big gain in Jetta sales, up 63% this year?
What we did with Jetta was reduce the entry price point. The average transaction price is consistent with the previous model, but the entry price point has brought new business in. The revenue [per sale] has stayed very much where we had it previously.
But even with that strong growth, you are a long way from selling 1 million vehicles a year.
If you think about VW on a global basis we have about 12% of global market share, but here in the U.S. we have just 3% to 4%. Part of that is market structure here. VW Group is not as present in the big SUV and pickups that are such a large part of the market. But even with that, we are still not getting the share we want.
In the case of VW brand, investing in [a factory in] the U.S. market will allow us to build three of our core vehicle lines within the NAFTA trade area. We can now really build the business around those core vehicles.
But how do you grow the business beyond the Jetta, Passat and Beetle?
We can go deeper with Golf and Tiguan, but we really need to nail the next short-term step, which in 2012 will be ramping up the Passat and keep the momentum going with Jetta. We are not short of product ideas and concepts to flesh out the range.
If you want one particular product apart from existing vehicles in the market, there is the SUV market at a price point between Tiguan and Touareg … a midsize SUV at a price that could bring significant volume. It would be between a SUV and a crossover — seven passengers in a three-row configuration.
Will growing your sales require another U.S. factory?
We are still in the first phase in Chattanooga, where we are ramping up to a 150,000-unit capacity. We can upgrade that within the existing footprint of the plant up to 220,000 to 250,000, and we have built this plant on just half the site. We could mirror the building on the other side of the parcel and double our capacity in future phases. This is a clear long-term commitment.
The Audi board has made it clear that they see U.S. manufacturing a priority. They will have a decision sooner than 2015, but there is no defined time line.
Quality still seems to crop up as an issue for VW. The brand was 16 out of 24 in the Consumer Reports ratings, and it scored among the worst brands in the J.D. Power and Associates 2011 Initial Quality Study. What is VW doing about that?
If you look at the Strategic Vision Total Quality Index, VW came out on top at that survey. And that survey just didn’t look at the trouble spots but also at the appeal of the vehicle. The point is that there are a number of ways of representing quality and the customer experience. There are certain areas where we have to improve on — mostly difficult-to-understand [controls] and the features that annoy customers.
One is Bluetooth connectivity and phone book structure. In Europe it is last name first, and that annoys U.S. customers. We have changed it around. Before, those complaints were not going up into the development chain and getting fixed fast enough.
Another example is air conditioning controls. In Europe it is something that people use only periodically, so it might not be the most easily accessed function. We have changed the faceplate of the air conditioning controls on the Passat so that it is now clearer and more intuitive to use.
That doesn’t happen overnight; it cycles through as you bring new generation models to the market. We have our fair share of things that go wrong with the product, but it is misconception that there are a disproportionate share with the VW brand.
When you look around the U.S. market, what are the other automakers you are looking at?
This is the most transparent and competitive market in the world, bar none. That’s what makes the opportunity of growth as great as it is. If you do the right things and have good products, word gets out in the marketplace.
Hyundai has done incredibly well recently driven by product. There are lots of lessons to be learned from Honda and Toyota over a period of time. The marketplace is rich in lessons of how to do things well and what to avoid. You have to get the fundamentals right.
