Editor's note: An earlier version of this story overstated the number of full-electric cars for which VW has booked production. The figure is 15 million by 2025.
HERNDON, Virginia — Herbert Diess has been CEO of Volkswagen Group only since April, yet the 60-year-old former BMW executive now heading one of the world's largest automakers has a clear vision of where he wants to lead his company.
This month, Diess installed longtime Audi of America President Scott Keogh as the first American to lead VW in North America in 25 years.
On Oct. 31, Diess sat down at Volkswagen's North American headquarters here for an hourlong exclusive interview with Group Publisher KC Crain, Publisher Jason Stein and Staff Reporter Larry P. Vellequette to discuss his company's operations globally and in North America.
Q: Why was Scott Keogh named to lead VW in North America, and why now?
A: What we always said and what we foresee for the Volkswagen brand is a story very much like the Audi story. We aren't coming from nowhere; we have a base, and everyone knows us. But there's a long way to go to really make Volkswagen a volume player here in the United States, and I think Scott has shown that it can be done. From a low-profile position, he led Audi to a top-four premium brand — well received, continuous growth, profitable. I think there is still potential, and I asked him to do the same for Volkswagen.
Where is VW's greatest opportunity for success in the U.S.?
I think Volkswagen has big potential here in the United States. Everyone knows Volkswagen. Most people think positively about the brand because they have their history with Volkswagen. We have been talking about your family, and so many families, that owned a Beetle, or they had a bus. Volkswagen is still present. I think we come now with quite suitable products for the United States. The Atlas was very emotional, and did a lot of positive motivation for the brand, for the dealers, for the customers. I think it's really a car for the American market. The Atlas shows that we can succeed in America. Also, the new Tiguan is selling nicely.
VW dealers have among the lowest profit margins of any U.S. dealer network. How will VW fix that?
We've spent quite some time with the dealers because we've really been coming out of a desperate situation when the diesel thing happened to us. We were really stuck, and we had very intense meetings — one-on-ones with the dealer council and the bodies and with each and every dealer.
What I'm very happy about is that they stuck with the brand. They supported us a lot over the last three years because they believe in Volkswagen. We showed them all the products to come, and I think they still believe in us because if not, they would have had enough possibilities already to quit. And I know many of them personally, and, I have to say, I'm also sorry about, let's say, the operational defects we had. We had to postpone a few deliveries. We had a few quality hiccups, which I'm really sorry about, and which we have to improve. What we discussed this morning, we will improve the team in all areas. We will upgrade our operations. We can do better.
Has VW largely moved beyond the diesel emissions scandal?
Most of it. We basically bought back and fixed close to 90 percent of the cars. Resales are still continuing because we don't want to flood the market with diesel. But I think it's a controlled process. We do it together with our dealer body. I think most of the things we have overcome. We still have legal issues worldwide, in Germany — you're aware of that — and it will take years to solve everything.
VW pleaded guilty to three felonies in the U.S. over the diesel scandal, yet the investigation in Europe lingers. Why can VW admit its wrongdoing in the U.S. but can't seem to get beyond the issue in Europe? Is the legal landscape that different?
It's quite different. Legally, we had here really a situation which was much more severe [compared] to the rest of the world, because our cars, when we launched the cars, would not comply with legislation. The fix in Europe was relatively easy; it was a software update for about 10 million cars, which is also through; we have fixed 90 percent of the cars. But it was not a real severe technical issue. The situation here in America was, by far, the most critical one worldwide. And it has to do with the emission regulation here in the United States, which is much tougher than in the rest of the world.
Historically, VW's marketing message has relied on the brand's German engineering. Will that message continue?
For sure. There are huge changes ahead for Volkswagen, with the cars, with the EV market really picking up in the next years. We will have a very strong product portfolio on electric cars because we are, worldwide, we are investing heavily. Just last week, I was in China. We broke ground for a car plant which will only produce electric cars. We have our first plant in Germany which only will produce electric cars. The platform is already booked for 15 million electric cars. We have sourced the batteries for 15 million electric cars, so this is a huge momentum coming, and probably from a volume piece, I think we have the best setup strategy for the electric vehicles to come.
How will VW do what others have struggled to do: persuade average consumers to buy electric vehicles?
Sales are picking up. It's not all over the place, but West Coast, if you go to a parking lot, you see already a decent mix of electric cars there. Most of them are probably Teslas, but what's happening now is that the cars become so much better.
The first car we will be launching next year, early 2020, will be the I.D., the size of a Golf, but because it's a full-electric platform, it has the interior space of a Passat. It has 400 to 600 kilometers (249 to 373 miles) of range, fast acceleration, fast charging and comes at the price of a diesel.
Many — not all — would consider an electric car because if you are still driving far distances, 20,000 or 30,000 miles [per year], it's probably not the right car. But there are so many people who are driving longer distances only so often, and it makes a lot of sense, in Europe, in China, and in the United States because the cars are really becoming good.
Will VW need a second assembly plant to produce EVs for North America?
We're considering. It's too early to announce, but we are considering, we are considering launches, but I would leave that to Scott. He has to make up his mind.
Does VW have opportunities to do more with a brand such as Ford?
There's nothing signed yet with Ford. We are in talks. Most of the talks have been centered around our light-duty vehicles — our small commercial vehicles business in Europe, where we found huge synergies. We are both relatively small in size against our peers, so what we're talking about is sharing a few platforms and manufacturing sites there, which makes sense. And within the dialogue, we are also touching other options, but this will be the main focus if we come to a conclusion.
What other options could there be?
It's too early to talk. But Ford is a strong American company. We have been working together already many years, in Europe and Latin America. It was a good experience for both companies when we worked together. We split up afterwards, and now there is another new business case in Europe, which makes sense for both companies. It feels good, and I hope we can conclude a case.
Is VW interested in sharing its MEB electric platform with other automakers?
Currently, we are really stretched because we need all the battery cells, and all the sourcing done, so we are stretched. But our joint ventures in China are using the MEB toolkit. I would say we are open [to licensing MEB], yes.
Does that include potentially sharing MEB with American automakers?
We've not yet introduced the MEB kit, but we think that, today, we have hundreds of different drivetrains in our industry, and there's a lot of differentiation in the drivetrain. I think this will become less because the battery cells will become very similar on the basis of the same chemistry inside. So I think in the future it doesn't make sense to have hundreds of different electric drivetrains because the differentiation of electric drivetrains is not as much anymore as it was with the combustion engine.
So it will be more about the economies of scale. Still, the battery pack, for the foreseeable future, will be more expensive than a combustion powertrain. So I think it makes a lot of sense to make more volume and generate economies of scale.
Are there opportunities at VW for broader strategic tie-ups with other automakers, including consolidation or mergers?
I can't comment on that. It wouldn't be our major focus because what's going to come now is a huge transition because of electric cars, and cars becoming really an Internet device. The industry is not prepared for that — at least we are not 100 percent prepared for the car becoming an Internet device. You have to offer services through the car; you need a new relationship with your dealerships because you have to share the customer data and combine your efforts. It's a big change coming.
We heard that FCA was very aggressive in wanting to talk to VW about combining some pieces of its operation.
We were not very aggressive in listening. But I can't comment because I was not in charge then.
Does VW's U.S. manufacturing footprint need to grow?
We set up the plant in Chattanooga always with the idea to be able to grow it, to mirror it. The plant is still too small, and we are considering different options — it might be electric cars, it might be a different derivative of the Atlas — it's still open. Scott will decide. We have opportunities there, and also economies of scale because it is still a bit underutilized as a facility.
What's VW's future in the U.S. when it comes to pickups?
No decision made so far. It's up to Scott. I think we are in much better shape now. If the Ford relationship works out well, we would have an Amarok successor, which would be then appropriate for sales worldwide — potentially as well for the United States. The other option is a unibody pickup, which is something for America, which is probably still a bit risky.
VW's culture historically has been viewed as insular, hierarchical and centered in Wolfsburg, which, as we've seen in recent years, hasn't always worked to the company's benefit.
For sure. This is a very big company and a very traditional car manufacturer with many years of history. Quite powerful because we have a strong engineering team there and good knowledge and facilities. But yes, we have to open up. When I started, we said that the regions had to have much more of a say, and we made huge progress. In Latin America, we had two products, designed on Volkswagen platforms, that are basically designed by the Latin American team in Brazil.
I expect the same thing to happen here. The team here started to use the new possibilities, but they didn't really make full use of them. That has something to do with the capabilities here — they don't have a design department, they don't have all the technical resources — but we're upgrading that still. They could do a hat on a Volkswagen platform on their own. He has design facilities on the West Coast, so he can do more. And I would be extremely happy and motivated if this team would take more responsibility.
In the past, the barrier to that was Wolfsburg, correct?
Yes, but it's not anymore. We would always have a look at what they are doing, and we would have to agree on the investment plans, but we are easy to convince if there's a good plan now. I think appointing Scott is a major step in that direction.
Why has it been so difficult for VW to have consistency in U.S. sales?
Because of a lack of consistency in the strategy, also the leadership, [because] we had so many changes. Probably also because we didn't listen to the market enough, to the customers, and we always tried to sell the cars we had in Europe here. We didn't work on a consistent brand perception, brand message. There was too much change over the years.
Does VW need to be in more segments?
We need to be in the right segments. The change now to the main segments here — A-SUV, B-SUV — has been important. Pickup is a very American segment. We have it in the portfolio, as we are very strong in China, we can use many of the Chinese products. They suit well to an adoption to the U.S. We are strong in Latin America. We have the toolbox to satisfy America. If we need a special, specific version of the Tiguan, for example, we can do it for America. It's very easy.
VW launched the Jetta and Arteon this year, two entries in a sedan segment that is falling fast.
Should we give up on sedans? Some say that, but I don't think so. In China, for instance, they've been shifting toward SUVs for the last 10 years, and incredibly fast for the last five years. Their SUV share now is as high as it is in the United States. It's an incredible shift. But in the past five months, SUVs have stagnated and sedans are coming back. Also, if you foresee electric cars coming, the big SUVs have a disadvantage because of their relatively high fuel consumption, which would require huge batteries. So to make big SUVs viable in the electric world is complicated. So if you have 50 km or 50 miles more range on a sedan, you might consider a sedan again.