VW's Sales Target: Bold or Bull?

Posted by: David Kiley on January 17, 2008

245px-VW-Logo.png

I’m not as down on the Routan name for the Volkswagen van as Welch is. Volkswagen has a history of naming problems…God knows…but this isn’t the most egregious example. I nominate the Touareg for that designation. Although, the Bora, which is the European Jetta, comes close.

What I am much more distracted by is the insistence by VW executives that they will sell 800,000 VWs in North America by 2018. I wrote a book about Volkswagen’s comeback from oblivion in the early 1990s, so I feel like I understand the VW culture a bit more than the garden variety reporter.

Volkswagen has proven in the past to be almost obtuse about some things concerning its brand, product selection, sales goals, quality, service, etc. At times, you see examples of decisions where a poll of 20 seasoned executives might say it should go one way, but one at VW’s top says it goes another way, so he wins. It’s a very top down organization when it comes to strategy and important product decisions.

The clearest example in recent years I can point to was the pivot in VW’s marketing around 2003 when it began selling itself as a technology company, ditching most of the good will and hipness it had been developing for about seven years with its Drivers Wanted ad campaign. The reason: to set the stage for higher priced vehicles like the Touareg ($40,000-plus) and Phaeton ($70,000-plus). The thinking was that the Drivers Wanted campaign didn’t have enough gravitas in it to support the pricey new luxury cars.

Many VW executives preferred that the new products had been crossover SUVs priced between $25,000 and $40,000 for VW and Audi instead of the much more expensive models that came.

At the show, I asked some current VW executives (VW of America chief Stefan Jacoby and VW AG chairman Martin Winterkorn) why they are declaring such an enormous (and impossible in my view) sales target of 800,00 cars in North America in ten years. VW sold 230,000 last year. I also asked several former VW executives I stumbled across at the show why they thought VW was setting itself up for a fall.

Jacoby and Winterkorn both told me in their own ways that they were setting up the target so that the whole organization knows what the mission is. It is also to drive the product planning, design and supplier constituencies. They want to pressure the whole system. Jacoby, for example, says that to hit the target, VW will have to not only build cars in North America to achieve better pricing and profits, but products will have to be far more tailored to the U.S. market than VW has done in the past.

One former VW executive now at another automaker, offered the following analysis. “The Germans are deluded to think that everybody is as car-crazy as they are. They aren’t. Especially in the U.S. The U.S. taste in vehicles is much more vanilla than Europe. Volkswagens are terrific cars for people who really like to drive. But that is a niche, not a mass market positioning. At 800,000, you are into mass market territory like Honda. Volkswagen doesn’t know how to do that. They also don’t know how to rid their system of complexity to the point where their quality will rival Toyota and Honda. They are way behind on this. Their factory processes don’t lend themselves to scoring high on quality either. I think the idea of putting this goal out there is a non-starter being made by executives who won’t be at VW to see it through, and they will leave the un-met goals to the people who follow them who will operate with a cloud of unmet expectations hanging over them. It’s a terrible move. Why not just set annual or three year targets, and set them below what you think you can hit, and over-achieve on those.?

Ouch. I also asked executives at Hyundai about the VW stretch-goal. A few years ago, Hyundai’s Korean management put out stretch sales goals for the U.S. of one million sales by 2010. Last year Hyundai sold 455,000.

Reader Comments

B. Braun

January 20, 2008 8:50 AM

Driving a VW is great because it holds the road unlike any car except another european auto. But....Volkswagen does not make a car that holds together long enought to get out of warranty. They do not know what the term customer service means. They have a office called VW North American that is nothing more than a shell and does zilch. Unless they aim higher than they have in the past they may as well forget it.

Ben

January 20, 2008 3:19 PM

I agree that achieving 800,000 sales in the USA is a very tall order for VW. 500,000 could be realistic if they are really dedicated. Here are the reasons they won't make that goal according to yours truly (a VW owner and enthusiast)

1. Quality
VW insists it has improved its quality, and I don't doubt they have. The problem is, everyone else has gotten 110% better. If VW wants to sell cars here, they need to have consistent "Much better than Average" ratings from Consumer Reports.

2. Price
Right now, most VWs are ridiculously overpriced. I love the Passat and think its great, but as a car that competes with the Accord/Camry, it shouldn't START at $6000 above where those cars are. Very few people will see the value in paying that much more.

3. Dealers
Time and time again, I read horror stories on the internet about how badly VW treats its customers. They seem to forget that it takes years to win a customer and seconds to lose one. I believe that they need to take drastic measures. Cancel every single dealer's franchise, and make them show that they are really dedicated to taking care of the customer before they resign.

VW needs to understand what Toyota has done to get where it is in the US today. It took Toyota a LONG time to build their reputation for quality. Probably a lot more than 10 years. Peoples perceptions don't change overnight. If VW quality became perfect today, they might have a chance at hitting their goal. That isn't happening though, and neither will selling 800,000 cars per year in the US.

Sorry VW, I love you, but things like this make you the new General Motors. You can talk a big game all you want, but if you don't deliver, people will just laugh at you. Right now, the snickers are echoing about the room.

munidas pereira mississauga canada

January 21, 2008 7:25 AM

While some niche market manufacturers survive with not so good quality, the large volume ones need quality as it affects:
1. customer satisfaction
2. Warranty costs
3. resale value which impacts customer purchase decisions
It is of interest to note that hyundai's higher sales were coincident with their reliability improving significantly.

Michael Beaton

January 21, 2008 12:02 PM

Stretch sales targets in a hyper-growth industry, where there are no limits, is fine. However, in the auto business, where the annual volume in North America is 15 million and trending lower and your exisitng volume is a shade over 200,000 . . . well, that's just stupidity! In it's rush to go toe-to-toe with Mercedes and BMW, VW forgot it's core crowd . . . the 20-35 year old woman, just out of school, looking for that first care with a combination of cuteness and performance. It was such a no-brainer to move customers from a Jetta to a Passat. But, upselling gets lost in translation and finances when the jump no involves a move to a $36,000+ SUV (in some cases $45,000). VW has lost that key consumer and it's going to come back to haunt them . . . frankly, they will be lucky to keep their existing market share. At the end of the day, VW's cars are overpriced for what the market expects and, no matter how they want to market, you just can't sell a $20,000 car for $27,500 . . . and expect to get away with it long-term.

Willa

January 22, 2008 11:10 PM

From what I have learned about VW, and having announced they are relocating some of their mfg in the U.S. I would say it is a savvy Corp.

Dave

February 2, 2008 10:14 AM

I have had 4 VWs spread over 30 yrs, currently driving an '07 Jetta. While I have had good experience with my cars, I will admit that the problems with 2000-03 cars made me think twice. Mine, however, has been very good (15 mos, 19K miles). Granted, that's still "new". However, read the blogs (like Edmunds.com) and you read no problems on the current generation cars. Feedback on the 5cyl cars like mine is good. That gives me hope that VW can play against today's quality expectations. NOW, bring the Polo to market in the US.

Lonny

February 6, 2008 3:13 PM

I have been a VW owner for 7 years (2000 Passat Wagon) and my experience within the first 50k miles was above expectations; however the last 35k have been relatively poor. I have been nagged with multiple little failures, such as emissions, vaccum lines, pwr window, brake sensors, courtesy lights, etc.

This is first non-U.S. manufactured vehicle. I was a loyal Ford customer, but we thought the VW was a step up in quality and at the time the price difference was OK.

My Fords performed just as well at 85k miles as they did at 35k miles, additionally, they performed strikingly well beyond 120k. I am concered about the long term care the VW will require at 100k plus.

My last purchase was a Ford again. We love the Tourag but could not justify price on vehicle.

SADVW

February 14, 2008 4:54 PM

I have a VW as well, nice buttons, cool dashboard, very poor comfort and been in the shop 11 times in the first 2 years. When I go in I see irate customers all yelling at the service desk asking why their cars are constantly in the shops. I'd heard the VW was a step away from folding up their north american sales operations back in the early 1990s, it may be that way again very soon. My prediction, in two years VW will not have a north american sales office and they will have to concentrate on profit centers, not loss centers, like every other corporation.

calling all toasters

March 28, 2008 10:59 PM

800,000? That must be total for the next 10 years, not per year.

That car company is going the way of Fiat, Peugeot, and Citroen: straight out of the American market due to poor, poor, poor quality cars. Buh-bye.

Eilert Weiske

February 7, 2009 10:40 AM

I drove vw's during the 1980's then switched to Honda's & Subaru's. In my experience the vw's were overpriced & had some serious reliability problems. The last three Subarus may have lacked the vw ergonomics & handling but have provided bulletproof reliability at a reasonable price.

VW appears to be improving reliability and is becoming a premium supplier (with premium prices), as such, it is difficult to believe they will achieve their mass market targets in North America.

Chelsea QC Canada

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