In 2009's dismal market, Volkswagen dealers fared better than retailers of many other brands.
VW division sold 213,454 vehicles in the United States last year, down 4 percent compared with 2008. Meanwhile, total U.S. light-vehicle sales shrank 21 percent. But with ambitious growth goals set by the manufacturer, Volkswagen's 580 U.S. dealerships have a big task ahead: Increase those sales to 800,000 by 2018.
To do that, dealers will need new vehicles in the lineup, including some built at a plant now under construction in Chattanooga, Tenn. They also will need more mainstream advertising, said Jason Kuhn, owner of Kuhn Volkswagen and Brandon Volks-wagen in Tampa, Fla.
Kuhn, chairman of the Volkswagen National Dealer Advisory Council, spoke with Automotive News Staff Reporter Amy Wilson.
How was 2009 for VW dealers?
All dealers felt the impact of the downturn in 2009. But on a relative scale, Volkswagen dealers fared much better than most franchised dealers.
Were Volkswagen dealers profitable in 2009?
Profitability probably remained level with 2008, but volume was down only slightly. The optimism level is even higher coming out of 2009 than it was coming out of 2008. We gained share. A vast majority of Volkswagen dealers are profitable, somewhere about 80 percent.
What are the big issues for Volkswagen dealers in 2010?
In 2010, we're going to see a modest increase in volume, but the bigger issue is that Volkswagen has a very aggressive plan to substantially increase volume over the next few years. We're going to start to see that uptick beginning with the new Jetta being released in autumn 2010. That will really begin the transformation of the brand in North America.
VW aims to sell 800,000 vehicles in the United States by 2018, nearly four times more than 2009's sales of 213,454. Does the brand need more stores to achieve that?
I don't think they need many more points to achieve that. Average sales per Volkswagen store are, for example, substantially lower than the average Toyota, Honda or even Nissan store. There is opportunity for most existing points to double or triple the volume of the vehicles without the manufacturer adding new points.
Volkswagen says it wants to add 40 stores. Is that OK with the existing dealer body?
That number is probably a 7 percent increase in total points. That's nothing compared to the estimated tripling of volume, which says a lot about the mentality of current management. They want to achieve substantially higher volume levels with the existing dealership network.
Are VW dealers generally satisfied with the brand and its direction?
Absolutely. You see that with the J.D. Power surveys. Every year, the Volkswagen dealer body is expressing more and more optimism. It really wasn't long ago that Volkswagen dealers in the United States felt there wasn't 100 percent commitment from Germany to the brand in the U.S.
That's totally changed. The commitment right now from Germany is outstanding. You can see that first and foremost with the investment they've made in the new plant in Chattanooga.
Is the new plant key to achieving the volume goal?
Absolutely. That plant is going to help Volkswagen build cars in the U.S. for the U.S. Second, it's going to allow them to competitively price their vehicles in the U.S., which is not necessarily the case today. By importing most of the vehicles, they get hurt by the valuation in the euro. So some current models are not priced as competitively as they need to be. That will change with the new plant.
To get the pricing right, will VW need to produce its small and medium-sized vehicles in Chattanooga or Mexico?
Yes, and I think that is the goal. The beginning of that process will take place when the plant goes online with the new mid-sized sedan. As time goes by, there is probability they will build additional vehicles on that line for the U.S. market.
What other vehicles would dealers like to see built here?
One vehicle we all would like to see get a competitive price is the Tiguan, which goes squarely up against the Honda CR-V and Toyota RAV4. We all feel the vehicle is better quality, but it's about $3,000 more than the competitive products from Honda and Toyota. The volume levels are just not what they could be.
What else needs to happen to hit that 2018 volume target?
The dealer body really needs to embrace a more volume-selling mentality. The average Volkswagen dealership sells about 40 new cars a month, and the average Honda or Toyota store sells double that. If we're going to gain market share, we're all going to have to volume-sell more than we have done in the past.
The other thing that has to change is that Volkswagen has to position their vehicles into mainstream America. Volkswagen is no longer going to be able to be a niche company. To go after Honda, Toyota and Nissan, they have to put themselves on the shopping list of buyers who would buy those types of cars. That's a big adjustment.
Should VW spend more on marketing and advertising? Or is it more about repositioning?
With the new ad agency, Deutsch, that's going to be a big responsibility, to really reposition the brand. I don't necessarily know that it's directly related to ad spend. Of course, all dealers want to see their manufacturers spend more. But I think it's really more tied to the message than it is to the pure dollars that are spent.
Have you seen any of the agency's work on the new message yet?
I have not, but we're very enthusiastic. For Volkswagen to achieve significantly higher volume levels, they're going to have to put the message out there that we have the types of vehicles you want, they are priced competitively and they are as reliable as a Honda, Toyota or Nissan. That third point is very important because there is a disconnect today between the perception of the reliability of a Volkswagen and the actual case.
How much does that hurt you?
We could sell more vehicles if the perception was a little different.
All Volkswagen dealers are seeing warranty service drop significantly, which is directly related to a dramatic increase in the quality of the vehicles. Now we need to get the message out to the buying public. Volkswagen is making vehicles today that are of substantially better quality than the ones made just four and five years ago.
Are the quality problems licked?
No question, they've been licked. Warranty service has dropped by about 60 percent across the entire vehicle line.
What's missing in the lineup?
The dealers would like to see a car at the low end of the lineup. Something like the [Honda] Fit or the [Toyota] Yaris.
Are you getting enough diesels?
Right now, all product is in short supply. All dealers are short of CCs now, and dealers are short of TDIs. We'd rather be one car short than one car too many; it keeps the demand going. [Regarding diesel], there's just been tremendous demand, and I see that continuing.
Is the factory doing enough to respond to dealer needs for additional vehicles?
Yeah. Going through the year we just went through, it was very tough to predict what the sales rate was going to be. They did the conservative thing by taking production down a little bit. But they have responded and will continue to respond to the market situation.
Would it be a mistake to bring the Phaeton back to this market?
I don't think so. There's a place for that vehicle here. It would have to be reconfigured a little bit. The price may have to be a little more competitive, but there's a certain cachet that vehicle brought to the brand.