Volkswagen has seen its popularity surge in the all-important US market in an amazing comeback after being all but given up for dead in 1993, writes John Rettie. But during the 1960s the VW Beetle was the leading import car with sales of half million units a year, an even larger figure than currently achieved by the Toyota Camry and Honda Accord – which have been the most popular cars in the US for the past decade.
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VW enjoyed a seven-fold increase is sales between 1993 and 2000, rising from around 50,000 to 350,000 vehicles per year. If VW had maintained this sales momentum it could have achieved a sales level of close to 400,000 units this year. Instead VW’s sales have languished the past two years while all but a handful of makes have seen sales increases. Instead of continuing to catch up with Buick in 11th place among 45+ brands, its ranking has slipped, letting Hyundai and Mitsubishi pull ahead. Two years ago VW officials predicted annual sales of 375,000 VW (brand) vehicles in 2001, so it’s obvious that VW sales have fallen short of internal targets.
VW missing the boat
An example of where VW seems to have missed the boat is with the Passat. The Passat has been extremely well received by those in the industry in the US even garnering best resale value. Furthermore even Toyota, Honda, Nissan and Saturn have all publicly acknowledged that the Passat was used as a benchmark car during the design of their own cars. Honda summed it up well during the launch of the Accord when an executive said that the Passat was a target car but they did not consider it real competitor as the Accord outsells the Passat four to one. Even the Nissan Altima, which looks so similar to the Passat, has zoomed ahead with sales running at double those of the Passat.
On the surface it seems that VW has missed a golden opportunity with the Passat to achieve a much higher sales level in the US. Yet publicly VW officials say they are not concerned. They sight the fact that they have not resorted to incentives, they have made a great profit and their dealers are satisfied. It must be noted that the company has suffered from a lack of any all-new cars to boost showroom traffic for the past two years. Something that is not tolerable in today’s completive market.
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By GlobalData2003’s product boost
This will change in 2003 with three new models – the New Beetle Convertible, Touareg, and Phaeton – these three should help increase sales by over 70,000 units in the US. The New Beetle Convertible will be on sale before the end of this year in the US, which is its key market. But the Touareg and Phaeton will not go on sale in the US until next summer.
At a highly visible media launch in Miami Beach in September the Convertible drew oohs and aahs from old and young, rich and poor. The launch was extravagant and it certainly created a big buzz in an influential part of the US market. VW expects to sell 30,000 or more of the Mexican-made car in the US in 2003 which will bring Beetle sales volume back up to 80,000 units a year which was the level it achieved in its first two years on the market.
VW in the US is more a niche player than mass marketer
With vehicles such as these VW officials point out, quite rightly, the company is more of a niche market player than a mass marketer. VW’s models appeal to people with higher incomes, a higher level of education and they attract the youngest buyers of any car company. For many years VW has enjoyed a demographic profile that other companies would kill for. Yet the age of its buyers is increasing as new products become more expensive – you’ll certainly not see many young buyers getting into the Touareg or Phaeton.
Frank Maguire, VP Sales and Marketing for VW of America, says that VW does not want to compete head to head with Honda and Toyota by having a car that appeals to the masses. The flip side is that if VW takes this direction by moving away from the volume market it will have to compete head to head with more established niche/luxury makes. VW though does not have the cache of a BMW or a Mercedes-Benz in the US, nor does it have quality or reliability nailed yet. VW is also the first to admit that its dealer body is not as good as it needs to be. These are serious challenges to overcome.
Moving up-market means lower volume
If the company succeeds in moving into this new arena it will inevitably give up its position in the US sales race. Interestingly when Bernd Pischetsrieder, became VW’s chairman last year he declared that the North American market was crucial to VW and he wanted sales to reach 1 million units a year (including Canada and Audi sales). He has since lowered his goal to 750,000 units. VW’s (brand) sales in the US would be approximately 590,000 units, which is a 67% increase over today’s figures. It might be more attainable if VW sales were at the level they were supposed to be and the company was not moving up-market.
From a European point of view the Paris Motor Show clearly pointed to VW’s future. The Volkswagen stand focused almost exclusively on the Touareg and the Phaeton. There were a couple of Passats on display but visitors during the media days have no recollection of seeing any Golf, Bora (Jetta), Polo or Lupo models on display. Even if they were there during the public days they were totally overshadowed by the Phaeton and Touareg models. Whether it was intentional or not the impression visitors got from this arrangement was that VW has already moved up-market and is leaving the entry-level market to Skoda and Seat. In Europe it makes sense as Skoda’s image has been totally transformed during the past ten years and it’s no longer bad for one’s self image to be seen driving around in a Skoda. Indeed in last week’s J. D. Power CSI survey results in Germany several Skoda and Seat models fared better than VW models.
Making VW a premium brand is more difficult in the US than in Europe
VW’s transformation into a premium brand may make sense in Europe, as it can remain a mass-market group with the Skoda and Seat brands included. In the US it will not work as Skoda and Seat have never been imported and are totally unknown brands. Ironically maybe that’s a good thing as it means they have no baggage – if VW’s move into the premium niche market does not pan out it could import Skoda and Seat models to the US and create a new channel of more affordable cars to compete with the mass marketers. Or it could rebadge them as VW models just for the US market, which might not be a bad idea.
VW is certainly at a major junction at this stage in its up and down history in the US market. It is clearly not proceeding ahead without a change in direction. Whether it has made the right decision in going up-market with niche products remains to be seen.
