VW's New U.S. Chief Out to Triple Sales

Volkswagen of America's Stefan Jacoby predicts that a new home and new models will save the struggling automaker

by David Kiley

Newly installed Volkswagen of America Chief Executive Stefan Jacoby made quite an impression on just his sixth day on the job. He announced a shift of the company's headquarters from Michigan to Virginia and the cutting of around 400 jobs. That's the bad news for VW's workforce. The more promising news, though, is that he has an audacious plan to triple Volkswagen's North American sales in the next five to eight years.

Such projected growth seems as unlikely to some analysts and critics of Volkswagen as it is surprising from a company that lately has seemed much more interested in growing sales in developing markets such as Russia, China, and Brazil than slugging it out in the U.S. with models that go head-to-head with growing Asian brands such as Toyota Motor (TM), Honda Motor (HMC), and Hyundai.

U.S. Workers Blame Germany

Volkswagen sales, on track to reach about 235,000 this year, are flat from last year, but even that is misleading. Sales are actually off by more than 100,000 units a year from 2003. Sales of the Jetta are off 8.5% this year, and Passat sales are off 31%. Touareg sales are down 24%. The New Beetle is down 20%. Incentive spending on those four models by Volkswagen exceeds the average spending for each of those segments, according to Edmunds.com. That's anathema to Volkswagen, which has historically discouraged incentive spending to maintain brand integrity and resale values.

Volkswagen employees, who were given the news of the job cuts Sept. 6 in a town-hall meeting, have complained that the biggest problem dogging VW the last decade has been the micromanaging of the U.S. operation from Germany, which has deprived its American unit of the right mix of products it needs to compete. VW, for example, won't launch its first sport-utility vehicle priced under $30,000, the Tiguan, until next year, even though that has been the fastest-growing category since 2000. The German management did, however, force an $80,000 sedan, the Phaeton, on the U.S. that flopped. Jacoby said he did not disagree with the complaint. "We have not done a good job of creating the right product mix for America, but that is going to change, and it is already underway," he said.

Jacoby said VW's product plan for the U.S. calls for four core, high-volume products, each of which will generate between 135,000 and 150,000 sales per year in North America. Those products, he says, would include a midsize sedan, probably the next Jetta design, to compete against the Honda Accord and Toyota's Camry. He also says he envisions a smaller sedan/hatchback that would compete against the Toyota Corolla. And he is thinking of selling two crossover SUVs, the Tiguan and one other. He says that a small car priced below $15,000 is in the plans, and that he would even like to introduce a small city car, like Mercedes-Benz's (DAI) Smart, to the U.S.

Battling the Exchange Rate

It is a surprisingly ambitious plan that will demand that VW build a new North American manufacturing facility. "We are looking at making the business case for this plan now," says Jacoby. Jacoby's master plan would result in VW hitting about 700,000 sales a year in North America, a very tall order considering the strength of Asian automakers and the weakness of VW's brand and its reputation for poor quality.

Volkswagen is bedeviled by the lopsided currency exchange between the euro and the greenback, which has hovered between $1.30 and $1.40 for the last few years. Volkswagen of America has lost $2 billion in the last two years alone. "The currency exchange is like trying to run a marathon when you start 10 miles behind the starting line," he says. Jacoby says the decision to build a plant in the U.S. has not been made.