Volkswagen’s new U.S. chief gets tough sales order from Germany
Jonathan Browning, the new chief of Volkswagen’s U.S. operations, has a tall order from the automaker’s corporate czars in Wolfsburg, Germany: Start selling 800,000 VWs annually by 2018.
That’s more than three times its sales last year.
Decades ago, VW sold hundreds of thousands of the iconic Beetle and was the top auto importer in America, and such a goal seemed within reach then. But a long battle with quality and reliability problems have driven those buyers to Asian brands and even back to domestic manufacturers.
“We need to get people in the door to see what a VW is today,” Browning said.
He’s plans to start with the new generation Passat midsize sedan, which VW will unveil Monday at the North American International Auto Show in Detroit.
VW will pitch the Passat as “German engineering” at an “accessible” price. The car, equipped with a manual transmission and a 2.5-liter five-cylinder engine that delivers 170 horsepower, will start at about $20,000.
Automatic transmission models and versions with larger engines, including a turbo-charged diesel with expected highway fuel economy of 43 miles per gallon and a driving range of 800 miles, will cost more.
“This is targeted at people who might be driving a Toyota Camry or Honda Accord or a Ford Fusion who previously had never considered a Volkswagen,” said Toscan Bennett, VW’s vice president of product marketing and strategy in the U.S.
VW will build the sedan at a new $1-billion factory in Chattanooga, Tenn. It goes on sale this fall.
For Browning to have any chance to grow VW’s sales from the 257,000 vehicles purchased in 2010, the new Passat needs to be a hit, said Jesse Toprak, an analyst at TrueCar.com.
Midsize cars account for about 25% of the U.S. auto market, but VW is weak in that area. The automaker sells two midsize sedans: the current Passat and a sportier CC. But the U.S. sales totals are small — just 42,500 for the pair last year. Toyota regularly sells more than 30,000 Camrys monthly.
VW also must overcome reliability questions that have nagged the brand for years, Toprak said.
“It tends to have great loyalty and a strong following, but suffers from these quality issues,” he said.
VW ranked 34th out of 36 auto brands in J.D. Power & Associates’ 2010 Vehicle Dependability Study with a score of 225 problems per 100 vehicles. The industry average was 155. VW came in 16th out of 27 brands on Consumer Reports’ rankings of 2011 model year vehicles on predicted reliability.
“We are not satisfied with where we stand at the moment,” Browning said.
Analysts say Americans don’t have much patience for VW’s small electrical problems. In addition, Browning said they want quicker and quieter response from the air-conditioning system.
“Cup holders are another issue that annoys the U.S. consumer. They need to be of sufficient size,” Browning said.
Getting the engineers in Germany to address the issues that matter most to U.S. consumers will be a high priority for Browning, who was named Volkswagen Group of America Inc.'s chief executive in October after stints at General Motors Co. and Ford Motor Co.
To reassure buyers, VW now offers a three-year, 36,000-mile warranty that includes free maintenance.
If the company is going to grow, Browning said, it will have to capitalize on the “real affection” Americans have for the Beetle. VW, for example, scores better than average in the latest J.D. Power ranking of auto brand appeal to consumers.
“We need to convert that interest in VW into purchases,” he said.
One strategy that is working is VW’s appeal to younger buyers.
With a median age of 46, the typical VW buyer is younger than any brand besides Toyota’s tiny Scion unit, according to Strategic Vision Inc., a San Diego consulting firm. The median age for all auto buyers is 54.
“This type of midsized sedan entry is just the type of thing they need to do. But VW won’t be able to enter enough segments in such a short time period to make that 800,000 U.S. sales objective,” said Eric Noble, president of CarLab, an automotive product and design consulting firm in Orange.
When the Beetle was at its peak in the 1970s, VW topped out with sales of 570,000 vehicles annually in the U.S. That’s about the size of Hyundai’s U.S. sales today.
“The time frame they have set is not realistic,” Noble said, “but any VW executive in America has to bow and genuflect to Wolfsburg.”