VW makes bid to regain 1970s magic in U.S.

Forty years ago, a teenage Hinrich Woebcken spent a year as an exchange student with an American family near Rochester, New York, going to class in an American school, soaking up American culture, being American in every way — at least in spirit.

"I even went to the prom," the German national recalls with a grin.

That experience was transformational; the metal shop at Churchville-Chili Senior High School inspired Woebcken to pursue industrial engineering.

Now the 57-year-old CEO of Volkswagen Group of America wants his company to undergo the same type of transformation. After two years spent righting a troubled ship, Woebcken has a new goal: turning his organization into an American car company — at least in spirit.

"I owe America, I owe Rochester, N.Y., and I owe this metal shop for how I basically went to start my adult life," Woebcken says. "We want to get more Americanized not only in our product but in our business. It's not that we're giving up on the genes of the Volkswagen brand. Volkswagens are Volkswagens. But what we recognized over the years is ... that we were too much a small-car company, too much a sedan company."

Achieving Woebcken's goal will not be easy. Volkswagen Group has spent millions of dollars and thousands of man-hours over the past 40 years trying to figure out the American automotive market, with mixed results.

Woebcken isn't looking to challenge the Ford F-150 or Chevrolet Suburban head-to-head. He just wants to get his brand back to the level of success it enjoyed in the U.S. during the late 1960s and early 1970s. In 1970, the brand sold 569,182 vehicles — its most ever in the U.S. — and had a market share of 5.8 percent, despite a lineup of only the Beetle and Microbus.

Last year, the brand sold 339,676 vehicles in the U.S., giving it 2 percent of the market.

But Woebcken has a plan — one that starts with restoring trust in the shaken brand and improving Volkswagen's reputation for high cost of ownership.

In 2017, the brand introduced a 6-year/72,000-mile bumper-to-bumper transferable warranty covering its full U.S. lineup.

Woebcken also wants to reposition the brand downward in the U.S., ending the decades of pricing premiums it levied in part because its vehicles were "German-engineered." In January, Volkswagen cut the U.S. price of its redesigned three-row Tiguan by as much as $2,180, depending on the trim level. The same month, the brand introduced a redesigned 2019 Jetta — its top-selling U.S. nameplate — starting at $100 less than the outgoing Jetta, even though the redesigned version has significantly more standard technology.

Woebcken's plan also includes localizing sourcing for Volkswagen's two North American assembly plants to hold parts costs down and increase profitability.

Learning curve

The symbolism was not lost on the new regional CEO.

"It was, in terms of Volkswagen, a pretty big thing that demonstrates ... that this is really an independent company here in America, that the factories report to us, the engineering centers in California and Detroit report to us, the purchasing organization — which is a big leverage for the cost situation — is reporting into the North American region, plus, of course, all the sales and marketing," he said. "So we really have all the levers in our hand now, not only to listen to the demands of the market, but really also to implement them."

Woebcken's efforts to Americanize Volkswagen might seem ambitious, but they're just the latest in a long line of strategic attempts by the German mass-market brand to become a bigger player in the U.S. It has been a hard learning curve.

In the late 1970s, Volkswagen bought a half-completed assembly plant outside Pittsburgh from Chrysler, becoming the first foreign automaker to manufacture its vehicles in the U.S. in the modern era. A decade and several hundred million lost deutsche marks later, it closed the plant and retreated to Germany.

There was also Moonraker, a 2005 pet project of then-VW Group CEO Bernd Pischetsrieder, undertaken after back-to-back losses of more than $1 billion in the U.S. in 2003 and 2004.

Derived from the original name for the Apollo missions, Moonraker was a kind of German spy mission. Nine Volkswagen executives (including Oliver Schmidt, the engine executive sentenced to prison for his role in Volkswagen's diesel-emissions scandal) moved into a swanky Malibu, California, mansion in an attempt to assimilate into American culture and understand why Volkswagen's cars weren't selling well in the states. The visitors traveled across the country by plane, train, subway and bus, visiting drag strips and NASCAR races, a Dallas rodeo, spring break at Daytona Beach, the Rock and Roll Hall of Fame in Cleveland and the Mall of America near Minneapolis.

They once walked — for three days — from Long Beach to Hollywood, just to observe how Americans parked their cars in parking lots and on streets, according to press descriptions at the time, and they combined their intel into posters, charts and photos that filled the walls of their 12,000-square-foot home. Each month, the Moonraker team made movies for their superiors in Germany to report their findings.

The multimillion dollar Moonraker project, which ended in the second half of 2006, arguably showed some positive results. In 2005, Volkswagen brand's U.S. market share was an anemic 1.3 percent. By 2009 — thanks largely to the advent of its now-discredited "clean diesel" technology — the brand's share had again reached 2 percent, before climbing as high as 3 percent in 2012. In 2017, following the first sales gain in four years, the share was back to 2 percent. But its sales of 339,676 represent about 60 percent of the 1970 total.

'Painful lesson'

Volkswagen has made other attempts to Americanize. In 2006, it revived the Rabbit nameplate briefly in place of the Golf. And from 2008 through 2013, the brand had Chrysler build a VW-badged version of the Town & Country minivan, called the Routan. Neither effort set the world on fire.

"Their push to Americanize Volkswagen has gone on in stages, which has been somewhat painful for the dealer network," says Michael DiFeo, chairman of the Volks- wagen National Dealer Advisory Council.

DiFeo says Volkswagen's U.S. dealers welcome the brand's recognition that its product cycles were too long and its prices were too high, and its commitment to bringing fresh products to dealerships each year. But the retailers want stronger incentives.

"I think that was a painful lesson that they learned recently with the new Tiguan, where they realized that they missed the mark and they needed to price nearer the basket," says DiFeo, dealer principal of Linden Volkswagen in Roselle, New Jersey. "The last component that's really going to ultimately dictate how much market share Volkswagen wants is going to be how competitive they are with their [incentive] programs, and that is still a work in progress."

Woebcken admits the transformation will take time. But he believes the efforts will bear fruit.

"It takes time to get a stronger recognition of the brand and to bring new customers to the brand," Woebcken says. "With this fantastic heritage from the late '60s and early '70s, I feel this very special feeling with this brand still exists, and it's something that other brands don't have. Therefore, this brand, with the right recipe, has the potential to be one of the strongest growing brands in the coming year."