VW Should Employ More American Chiefs For Success In U.S.

VW’s Range Limited, Uncompetitive, Poor Quality; Dealers Weak.

“Few Americans have got anywhere near the VW management cadre at any point”

Volkswagen, Europe’s biggest car maker currently failing in its bid to find success in the U.S., needs to employ more Americans in top management posts and find a consistent brand message.

VW, which wants to be the number one auto manufacturer in the world, should also abandon its unrealistic U.S. target of 800,000 annual sales by 2018, revamp its product line, and cut costs.

That’s the conclusion of a report “VW: The American Problem-Why is VW failing in the U.S.” – by Bernstein Research analyst Max Warburton.

Warburton expects VW to lose between 800 million euros and 1 billion euros this year ($1 billion to $1.3 billion) in the U.S..

Industry consultancy IHS Auto has said VW sales in the U.S. this year will reach about 360,000, and are unlikely to be much more than 600,000 by 2021. That compares with the 800,000 by 2018 target, which is an integral part of VW’s plan to be number one in the world by then, ahead of Toyota, GM, and the Renault-Nissan alliance.

Last year, VW’s U.S. sales dropped 7 percent to 407,700.

“The U.S. remains a seemingly perpetual problem for the company and the latest comeback plan has failed. In the last two years, VW has seen both market share and absolute volume fall in the U.S. The 2018 targets of 800,000 units and solid profitability now look totally unrealistic,” Warburton said.

“Incredibly, “niche” producer Subaru now sells 50 per cent more cars in the U.S. than VW,” Warburton said.

Warburton called VW’s model range limited and increasingly uncompetitive, with poor quality, a weak dealer network, weak marketing and an inconsistent strategy.

All is not lost though.

“Ultimately, we believe VW can do better in the U.S. – but progress will be costly and slow. We fear VW’s U.S. losses are unlikely to moderate in 2015 – any meaningful improvement must likely wait until 2016 or 2017,” he said.

Losing money
Warburton said he believed VW brand, excluding its premium subsidiary Audi, has lost money in the U.S. every year for 10 years, although a $1 billion loss isn’t that bad for a company which makes the equivalent of about $15 billion a year in operating profit.

Despite much effort by VW management over many years, the turnaround in the U.S. has not materialized. The fact that not many Americans have made it to the top of the company might be a factor.

“Few Americans have got anywhere near the VW management cadre at any point, and from our digging we believe (management board chairman) Piech himself has only visited the U.S. three times in the last ten years,” Warburton said.

Warburton had these recommendations for VW in the U.S. –

1. Abandon its unrealistic 800,000 target for 2018
2. Appoint some dedicated U.S. management
3. Re-examine the product line and expand it intelligently
4. Lower material and production costs to be competitive
5. Find a consistent brand message and stick to it
6. Improve financial disclosure to apply pressure to all concerned.

VW now has a $1.3 billion factory in the U.S. in Chattanooga, Tenn., which makes the Passat medium sedan, and announced in the summer a $900 million expansion. This will increase production capacity from 150,000 a year to 250,000, and will include the new CrossBlue 7-seater starting late in 2016.

Honda and Toyota of Japan have faced similar problems in the U.S. to VW, but by moving more and more product development and engineering capacity from Japan, turned products like the Accord and Camry into big U.S. successes.