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VW plans to be No. 1 car seller in the world by 2018

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VW plans to be No. 1 car seller in the world by 2018

Updated 10h 21m ago

By James R. Healey, USA TODAY

Is Volkswagen out of its mind?

The world's third-biggest car company, revving up a plan to become the very biggest on the planet, will tell you absolutely not. Bases covered. But consider:

VW wants to be the world's biggest by 2018, knocking off Toyota Motor and General Motors, both of which have acknowledged that their supersize has hurt more than helped in many ways.

VW wants to fuel its global growth by tripling sales in the U.S. even though key products have yet to prove themselves. Indeed, the Tennessee factory that will build one of those core models — a replacement for the VW Passat midsize sedan — won't open until next year, and the new midsize will be the first car it's ever built.

The German automaker also is counting on what would have to be an almost magic popularity jolt for its Tiguan small crossover that competes with the Honda CR-V and Toyota RAV4. Each now outsells Tiguan about 8-to-1.

Meanwhile, VW says it might reintroduce in the U.S. the VW Phaeton, an $85,000 luxury VW that previously failed here.

There's more, but even if you ignore it all, you have to wonder what the German car company is thinking as it plunges into an aggressive plan to triple its size. The plan includes more than tripling U.S. annual sales from about 300,000 the past couple of years to 1 million VWs and Audis flying out of showrooms in 2018.

At the least, "It'll be very challenging," says Jeff Schuster, executive director of automotive forecasting at consultant J.D. Power and Associates. Not only because Asian makers —Hyundai especially — are fierce rivals, but also because Detroit makers are back in the game, Schuster says, fielding credible small and midsize cars.

The two men running VW's U.S. operation are adamant that it's a legitimate target, not a stretch goal meant to rally workers.

VW can get to 500,000 annual U.S. sales without even adding dealers here, says Mark Barnes, COO and interim president of Volkswagen of America.

"No. They can't do it," says analyst Rebecca Lindland, about the 1 million target. She's a veteran auto-industry expert at IHS Global Insight consultants and a fan of German cars — and VW particularly — so she wishes she could say otherwise.

But her company's rosiest scenario for the VW Group in the U.S. — the VW and Audi brands, plus low-volume nameplates Bugatti, Bentley, Lamborghini — peaks at about 685,000 U.S. sales in 2015, which it forecasts to be a near-record year, and perhaps the best this decade, for overall U.S. auto sales.

"If you're going to grow, somebody's going to lose. Where is this volume growth going to come from?" she poses, riffling though IHS' forecasts out to 2018 and finding no automaker expected to lose enough sales to let VW hit its target.

Barnes agrees. "No one's going to say, 'C'mon, Volkswagen, you can have our share.' "

But VW believes new models specifically tailored for the U.S. market and what automakers see as growing U.S. interest in fuel-efficient, small cars — a VW specialty — can make it happen.

A short-term hiccup

The U.S. role in VW's global growth has been a focus of discussion most recently because the engaging and hard-driving U.S. CEO, Stefan Jacoby, who was to lead the charge, abruptly jumped to run Volvo.

Jacoby's departure "is a disruption, certainly. He was articulate about conveying the plan, internally and externally," Schuster says.

New "interim" leadership — or the absence of a quick replacement — creates "an unknown, and we know how people react to unknowns, both consumers and employees. It's not a good thing. It certainly can slow the execution of the (expansion) plan," he says.

But Schuster expects it to be a short-term hiccup, not a long-term tragedy.

Word of Jacoby's talks with Volvo's new owners, Chinese auto company Zhejiang Geely Holding Group, surfaced in June, unsettling VW headquarters here and in Germany. Geely agreed in March to buy Volvo from Ford Motor for $1.8 billion. The deal was completed in August. VW tried to keep him, but Jacoby settled on Volvo and was officially named CEO Aug. 2.

The relatively long time to appoint a replacement is because "it's holiday season in Europe," slowing the bureaucracy, says Michael Lohscheller, CFO of VW of America and interim CEO of the U.S. operation. He's Barnes' partner in a collective corner office until VW in Germany names a new U.S. boss.

In the meantime, the company and its expansion plan won't suffer, Lohscheller says.

"Management here has been in place three years," so is familiar with the growth plan and can steam ahead in the face of uncertainty about a new leader, he says.

As for the realism of the U.S. plan, Lohscheller and Barnes insist VW has squarely faced the daunting challenges, knows the potential potholes and can gear up to carry the U.S. share of the load.

VW's plans to grow

What VW knows it must do to grow dramatically in the U.S.:

•Improve quality. "It would be dangerous to slip even a little on DQR," Barnes says, using industry shorthand for durability, quality and reliability.

"We were not pleased with what happened in the latest J.D. Power survey," he says.

The Power Vehicle Dependability Study — how well 3-year-old cars are holding up — shows the VW brand generally inching up the past few years. Even so, it was near last — 34 out of 36 brands — in the 2010 study.

Audi's score slipped this year and it wound up 26th.

Power's Initial Quality Survey — a measure of problems in the first 90 days of ownership — showed VW dropping after several years of improvement and landing 31st of 33 brands sold here.

Audi did better on the IQS, scoring just below the industry average and placing 12th.

•Mind the models. VW is quick to say its new and freshened vehicles will power the sales jump. It says it will carefully launch and market models aimed for the U.S.

The 2011 Jetta, first of the Americanized cars, goes on sale this fall. The still unnamed NMS, for new midsize or midmarket sedan, that will become the Passat's replacement is due next year.

An update of the New Beetle — a model always meant mainly for the U.S. because other markets lack the same degree of "Bug" nostalgia — is due next year, too.

Polo, a small sedan VW doesn't sell here now, is expected to come in 2012 or 2013. It would play to the presumed embrace of small, fuel-sipping cars and might have an engine as small as 1 liter.

E-Up, a small all-electric car with a forecast range of 80 miles per charge, is due in 2013 or 2014. By then, Chevy Volt, Nissan Leaf, Mitsubishi i-MiEV and perhaps other electrics will already be on sale here, so VW might have to fight to persuade battery fans to wait for its model.

•Build real VWs. Even those crafted specifically for American buyers will retain the elegant interiors that fans love and will continue to feel — and drive — like German-blood VWs, Barnes emphasizes.

That would amount to learning well from history. VW changed the personality of its Rabbit (now called Golf) when it Americanized the car — giving it a softer ride and different interiors — when it brought it here in the 1970s to exploit fuel-crisis panic that sent U.S. buyers hunting for the fuel-sippers.

Sales of that Yankee-ized Rabbit fell so far that VW shut the U.S. factory in Westmoreland County, Pa., it had bought to build the vehicle. "Malibu-ing the Rabbit" was the dismissive comment at the time, a reference to a soft-riding Chevy model unloved by fans of German makes.

"There was some concern about that — dumbing down — as the core cars are redesigned for American tastes," Barnes acknowledges.

The 2011 Jetta, for instance, is significantly bigger than the car it replaces and has taken a couple of technical steps backward to cut costs and lower the price. The rear wheels have drum brakes, for example, replacing more-sophisticated discs. (VW insists that third-party tests show its drums stop as well as, or better than, rivals' discs.)

And the rear suspension uses a so-called torsion beam instead of the independent rear suspension on the current Jetta.

Foreseeing the threat has meant inoculating against it, Barnes says, by making sure the Americanized (or in VW's view, simply American-size) cars still handle crisply.

Maintaining that VW touch is crucial. "I don't think I've driven a VW in the last three years that didn't knock my hat into the creek," says auto veteran David E. Davis Jr., now a columnist at Car and Driver magazine.

•Avoid diluting the look. Automakers often get conservative as they try to widen the appeal of vehicles, worrying that a distinctive appearance could turn off mainstream buyers, who tend to be conservative.

"They need to look like German cars. You need to understand what motivates people. It's the DNA of your product," analyst Lindland says.

Barnes agrees that it's important to "keep the VW appearance, the fit-and-finish."

•Know the enemy. In any auto discussion these days, fast-rising Hyundai is cited as a threat to other makers. But Lohscheller worries more about bigger names: "Let's not underestimate Toyota." Despite a hellish year of recalls, federal probes and lawsuits, "They haven't just gone away."

Toyota also is a cautionary tale for VW. Toyota executives have readily admitted that their quest to be inarguably No. 1 in the world led them to cut corners and overlook quality and safety issues that got them into trouble.

Toyota brass now swear they'll worry first about the basics and hope to grow simply because the products are good.

•Have a Plan B. "In a 2018 scenario, you always have to be concerned about the overall economic situation," Lohscheller acknowledges.

Christian Klingler, member of VW's management board in Germany, says, "We are fully prepared for another crisis. Absolutely no doubt."

Simplified hardware

VW has remained profitable in tough times, partly because it has simplified its menu of hardware.

The company can manufacture most of its models using just two basic foundations, or platforms. One accommodates sideways engines, as in VWs and most front-drive cars. Another handles engines aligned front-to-back, as in its Audis. Each can be lengthened, widened or otherwise sized to fit, without starting from scratch.

Still, one definition of crazy is doing the same thing and expecting different results. And much of what VW plans echoes things it has tried before in recent decades: a U.S. factory, the Americanization of models, even the idea that the high-end Phaeton might be worth another try here.

But this time it's different, VW says. This time, the German brass at all levels understands the U.S. market and its importance.

VW Group global chief, CEO Martin Winterkorn, in rare moves, not only came to the U.S. in July to help roll out the 2011 Jetta in San Francisco, he also met with dealers there.

Says Lohscheller, veteran of DaimlerChrysler and Mitsubishi before VW, "I've never seen such a commitment from a (VW) CEO."

link:

http://www.usatoday.com/money/autos/2010-09-03-vw03_CV_N.htm

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