Volkswagen AG's existence in the United States has always been one of highs and lows but not as near to the ground as now.
How grave is the situation? For the past three years, VW's U.S. operations have lost close to $1 billion annually. Now the German automaker is trying again to save the brand in the U.S. Stefan Jacoby, a German with close ties to VW Chairman Martin Winterkorn and Supervisory Board Chairman Ferdinand K. Piech, was tapped to head U.S. operations.
Jacoby, 49, made his mark as head of VW's global sales and marketing. Since Jacoby took charge, VW boosted its European market share to 20.3 percent from 18.1 percent. With its U.S. fortunes slipping, Jacoby is facing his biggest challenge yet. His mission is to meet Winterkorn's target of breaking even in the U.S. by 2009.
Only a year ago, the German automaker was gearing up a huge marketing campaign to relaunch a revamped Rabbit and Jetta with enhanced in an effort to recapture its niche as the affordable, stylish European car of choice for young generation shoppers. The plan, as previously reported, was to create a VW renaissance.
"I've never seen a brand struggle so hard to understand the U.S. market and fail so miserably," said Rebecca Lindland, a director at consulting firm Global Insight Inc. VW's sales dived to 235,000 last year, from 338,000 in 2002. Martin left last December, part of a shakeup when Porsche took over.
Making matters shoddier is the notion in America that VW's quality lags versus its Japanese rivals. Americans believe that VW's interiors do not stand up to their lifestyle. Americans, as a fact, do a lot more eating and drinking coffee in their cars than Europeans do.
That is one factor in J.D. Power & Associates Inc. ranking VW in the bottom 20 percent for reliability, quality, and service. "That really hurts VW when its young customer base does so much online comparative shopping," said Power Information Network analyst Tom Libby.
To push turnaround, Jacoby has to battle the excruciatingly high euro and VW's narrow manufacturing presence in North America. The company needs to introduce new models that build on its long tradition of quirkiness and connect with the Americans. Instead, the automaker's more recent offerings look bland. Dealers think VW blew a golden opportunity when it chose not to introduce an updated version of the wildly popular Microbus from the '60s and '70s.
Casey Gunther, VW's top-selling dealer, in Coconut Creek, Fla., is troubled. "We're missing the funkiness" that U.S. buyers expect from VW, he said. "The Germans don't understand." And unlike in Europe, affluent buyers don't see VW as an inspirational brand.
Winterkorn vows the turnaround of the U.S. business is his "No. 1 priority." But there is only so long any management can put up with nearly $1 billion annual losses. "For the first time in some time, the phrase 'If we are to stay in the U.S.' precedes a lot of conversations at VW," said one executive close to VW.
In China, VW business is booming. The automaker expects 12 percent sales gain this year. This target will be helped by the Magotan sedan and other product lines. Sales in China could top 800,000 cars this year, Volkswagen China Group executive vice-president Soh Weiming said at a car show in Changchun.
"The market is still growing at a very aggressive pace," added Soh. "Ten years ago only a fortune teller could tell you how good the car market would be in the following year, but now the market is pretty stable."
