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Volkswagen: Admit Defeat In U.S.; Withdraw Namesake Brand

Volkswagen: Admit Defeat In U.S.; Withdraw Namesake Brand.

“Skoda makes good products and it doesn’t have a cheating image to change”

“That’s complete nonsense. Skoda doesn’t have the product or the SUVs.

Volkswagen, tainted by its admission it cheated government regulations and sold its cars to Americans under false pretences, should withdraw the brand from the U.S and eventually replace it with Skoda, its European workaday brand.

That’s the view of Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) at the University of Duisburg-Essen, in the week the U.S. sued Volkswagen for up to $48 billion for allegedly violating environmental laws.

If VW doesn’t do this, Dudenhoeffer said it faces an endless, hugely expensive and vain struggle to restore faith in its tainted brand.

Investment researcher Evercore ISI analyst Arndt Ellinghorst isn’t impressed with this idea.

“That’s complete nonsense. Skoda doesn’t have the product or the SUVs. The VW brand still has heritage in the U.S. and needs to get over this diesel issue and start to bring the right products to the U.S., not just European versions. Starting with a new brand from scratch which would inevitably be labelled an eastern European budget brand, that makes no sense,” Ellinghorst said.

Other experts say VW was never very serious anyway about duplicating the success of its namesake brand in the U.S. that it achieved in Europe and the rest of the world because it failed to offer the kinds of cars that Americans want to the market.

VW is trying to get U.S. regulatory approval for repairs to around 500,000 diesels fitted with so-called “defeat” software, which produced legal amounts of noxious emissions only when regulators were testing for compliance. The scandal also involves 8.5 million diesels in Europe that failed to meet fuel economy standards.

Buy back diesels
Press reports in Germany suggest VW will buy back 115,000 of the diesels car sold in the U.S. and fix the rest. Other reports suggest VW will have to buy back and trash the lot.

VW CEO Matthius Mueller will meet Environmental Protection Agency (EPA) officials in Washington next week to discuss this. VW brand chief Herbert Diess is also in the U.S. currently, seeking to charm the media at the Consumer Electronics Show in Las Vegas, and next week at the Detroit Car Show.

Dudenhoeffer said VW faces an uphill struggle to make U.S. diesel cars legal, and it could afford to eventually pay all the legal claims arising from regulators, customers and dealers. But the task of restoring long-term lustre to VW’s brand image looks hopeless.

“Because of the “dieselgate” scandal, Americans don’t want diesels and it will be difficult for VW to offer cars in the U.S. That is a big burden for VW and in addition, the public doesn’t like to be cheated. How does it handle the fact that potential customers are confronted with this cheating image,” Dudenhoeffer said in an interview.

“The VW brand is very weak in the U.S. so it would be better to stop car sales under the VW brand. VW still has Audi and Porsche, after all. VW could come back in a few years time with Skoda. If VW wants to stay then it will continue to burn money in the U.S.,” Dudenhoeffer said.

Skoda is VW’s Czech-based mass market subsidiary. It sells cars under its own brand which are really cheaper versions of the VW Up, Polo, Golf and Passats in disguise. VW has a similar Spain-based subsidiary SEAT.

Kelley Blue Book analyst Jack Nerad reckons VW has never really had its heart in making its namesake brand a success in the U.S., saying it is more of a niche player, with its diesel cars a niche within a niche.

“If VW was really serious about being a big player in the U.S. market, it would have say three crossovers in the market now, as opposed to two (the Tiguan and Touareg) that are uncompetitive. They are small for their price and much more suited to the European market,” Nerad said in a telephone interview.

“Every few years VW will make noises about getting serious in North America which lasts about a year then things go quiet for a while, then they crank it up again. I’ve seen this for about 30 years. They are so focussed on products that work in Europe. They’ve nothing competitive in the growth markets, and that’s not a recipe for success,” Nerad said.

Given that Skoda only makes vehicles that are clones of VWs, that might have to change if it was to enter the U.S. market.

Nevertheless, CAR’s Dudenhoeffer said Skoda has a good reputation and was comparable with other mass market brands like Toyota and Nissan.

No cheat
“Skoda makes good products and it doesn’t have a cheating image to change,” Dudenhoeffer said.

But it might be difficult decision for the major stockholders, the Porsche family.

“They want the VW brand to succeed because it is part of the historic roots of the family and it would be as blow to family pride to give up on the U.S.,” he said.

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