Wednesday, March 16, 2016

Blowing Smoke

Michael Horn is out as president of the Volkswagen Group of America.  He left last Wednesday.
Horn was popular with U.S Volkswagen dealers for his frankness during the diesel emissions scandal, his plan for cash incentives, a stronger push to bring retail prices for Volkswagen cars in line with domestic and Asian competition, and a push for models designed to cater to American tastes.  He was not, however, getting along well with top VW management in Germany, and the company announced that he and Wolfsburg were mutually parting ways. More likely, he was forced out for pursuing goals for the American market that the parent company was against, such as a "goodwill package" that returns money and extends roadside assistance service to Volkswagen diesel-engine-car owners.  Horn got out front on the scandal in America when no one else at Volkswagen would come to the U.S. to address people's concerns.  No one is more angry about all this than the U.S. dealership council.
"There is no sense of a resolution to the diesel scandal," the dealer council said in a statement following Horn's departure. "We are troubled watching the mismanagement of this scandal from Germany, and how it may impact the ultimate decisions by the authorities in the United States. This change in management can only serve to put the company at more risk, not less."
The American dealership council feels let down by this development, but that's hardly the end of it.  Back in January at the Detroit auto show, Herbert Diess, the international leader of the Volkswagen brand, opined to American dealers that maybe Volkswagen should stop trying to compete with Chevrolet, Ford, Toyota and Honda in the U.S. and simply be a "niche brand."
So . . . what does that mean?  Would Volkswagen simply be a small mass-market-priced brand in the U.S., like Mazda and Subaru, and concentrate on compact models that don't reflect mainstream American tastes, such as the Golf (below, in sixth-generation form) or even the Polo?  Or would it sell "higher-end" vehicles, as Diess himself suggested?  And does that refer to cars like the B-class Passat (not to be confused with NMS-class sedan of the same name) or the current Scirocco, neither of which are available in North America at this writing?  It doesn't matter to the American dealers.  They were completely behind Horn's strategy and are on record as saying that abandoning the mass market would be a catastrophe, given all the investments made in the United States - especially the VW factory in Tennessee - and worsen Volkswagen's already pathetic U.S. sales numbers.
Part of the problem with Diess's suggestion that Volkswagen move upmarket in the States, in addition to the dealers' objections, is that the Volkswagen brand is still seen as a low-priced brand in the eyes of American consumers, and compared to most of the other European brands in the U.S. market, it is.  This is ironic, though, since Volkswagen hasn't really been a low-priced brand since VW bought the Czech automaker Škoda and the Spanish car company SEAT in the early nineties. Škoda and SEAT, respectively, fill the same role in the Volkswagen Group's pricing hierarchy in Europe that Chevrolet and Pontiac once did in the hierarchy established by Alfred P. Sloan at General Motors here in the United States.  The Volkswagen brand has become the equivalent of Oldsmobile in Europe, and VW's pricier models here have made that evident, but with Škoda and SEAT unrepresented in America, VW remains like Chevrolet in the States . . . despite the fact that a Golf (the current version is below) costs more than a comparable Chevrolet Cruze.  Compared to brands like Chevrolet, Toyota, Ford and Honda, VW offers a lot of car for the money - take it from a Golf owner -  but it's still more money for the car.
The biggest misconception about Volkswagen, though, is that it used to be a mass-market brand in America before the Japanese took over the import market.  It never was, even when the brand was a low-priced one and was the dominant import marque.  Low prices do not mean mass-market appeal.  The original Beetle was certainly a popular car among those who valued economy and frugality, and its success made VW the top-selling import brand in America in the sixties and the seventies, but this was at a time when imports represented a tiny portion of the American market and GM alone controlled roughly 50 percent of that market.  Today, the Detroit companies control a bit less than that combined, with foreign brands dividing up the rest. Volkswagen's market share in the U.S. stands at about 2 percent today, not much less from the 3.2 percent it held in 1963.  As I have said repeatedly on this blog, VW's driving and handling characteristics are more precise and controlled than American and Japanese cars, both known for their blandness, but blandness is what Americans like.  That's why it was the Japanese car companies, not the European ones, that grew the U.S. import market and made it mainstream.    
That said, VW's efforts at making mainstream cars for the American market have fallen short.  The current Jetta earned respectable sales while offending VW enthusiasts for being too dull, and the company has had to upgrade it since its 2011 introduction.  The NMS Passat, introduced for the 2012 model year to compete with the Toyota Camry and the Honda Accord, was a better, more Germanic car than the Jetta but was not up to par with the old German B-class Passat.  Alas, it has been falling in the sales reports after a strong first year,  The revised 2016 Passat (below) shows improvement, but its timing - having been introduced as the diesel scandal broke - couldn't have been more unfortunate.
Personally, I wouldn't mind if Volkswagen moves toward selling niche vehicles for a small customer base (I'd welcome that, in fact), but I would be happy with any business strategy that keeps VW in the States, and if a mass-market focus is what it takes to do that, than VW should be supporting the U.S. dealers instead of fighting them.  Only Volkswagen doesn't seem to want to either support or fight the dealers; it seems to want to ignore them.  It isn't addressing the diesel scandal or falling sales with any sense of urgency, as far as I can see.  This is a dangerous attitude, given that the company and dealers have indeed invested so much effort and so many resources in making the mass-market strategy work that an abrupt change of strategy could cause the whole American division to fall apart.  The Chattanooga plant could end up being a grander failure than the old VW factory in Pennsylvania.
I don't need to tell you again that I don't want Volkswagen to quit the U.S. market entirely, even though the situation is so precarious that it could actually happen.  I got a taste of a life without a VW to drive when I accidentally drove my 2012 Golf into a concrete lamppost base in a parking lot at low speed during a heavy rainfall.  In the time it took to get it repaired, I borrowed my mother's car at first, then, after   bringing it in, I got a rental car.  Both were Hondas, my mother's car a Fit and the rental a Civic.  Both cars were so pedestrian and boring that I was afraid I'd get into another accident by falling asleep at the wheel.  To be fair, the Fit was agile and nimble, and I appreciated those qualities, but I missed driving my Golf.  I hope to keep it for another seven years.  But then what?
Things don't look good for VW, what with no fix in sight for the diesel-powered cars it's already sold in America and the dealer network up in arms over Horn's departure.  The company could very well pull up stakes and quit the U.S. entirely, but I hope it manages to survive here in one form or another.  Maybe it will become a niche brand and sell its quirkier cars, like the Polo, here.  Maybe it will stay mainstream and expand its SUVs.  But no Volkswagen in America at all?  Sorry, I can't accept that. 

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