Roy Exum: VW, The Future Is Now

Friday, June 20, 2014 - by Roy Exum
Roy Exum
Roy Exum

Reuters, the international news agency, reported a full six months ago that Volkswagen AG would build a new SUV vehicle at its Chattanooga assembly plant. Since then, the world’s automotive experts have become mystified by the German auto giant’s bumbling inability to choose between Chattanooga and Mexico for a promised $7 billion commitment in North America.

"VW is taking way too long again to tackle another pressing U.S. problem," Arndt Ellinghorst, London-based analyst at ISI Group told Reuters reporters two weeks ago. "The crossover will be a gainful addition to their portfolio, VW has got no time to waste."

But Volkswagen officials remained mum late Thursday afternoon after Reuters issued an updated report earlier in the day that Chattanooga would soon be chosen to build two desperately-needed SUV-style vehicles. Even if VW were to announce today that the crossovers will be built at the Chattanooga facility, it is believed it will be 2016 or early 2017 before the first models actually roll off the assembly line.

Consider this: Car sales in the United States for the month of May were the best since The Great Depression. The website Autodata claimed 15.5 million Americans bought new cars last month. Chrysler sales were up 17 percent while General Motors was up 13 percent, this despite embarrassing recalls.

But VW got hammered. Sales were down 15.4 percent with 32,163 units sold, which analysts noted was worse than the January-to-May drop of 11.5 percent. The losses included the entire VW line – the Golf brand dropped 41.3% to 1,793. Sales of the Jetta dropped 12.5% to 13,915. Beetle sales dropped 26.6% to 2,729. And the Chattanooga-built Passat sales fell 12.8% to 8,955.

By comparison, Toyota – with a total sales increase of 17 percent last month – sold a whopping 49,584 of its popular Camry model alone. It is going to take a long time for VW to build a Passat or any other vehicle to displace the popular Camry, now the No. 2 selling vehicle in the country behind the F-150 Ford truck.

Volkswagen realizes the SUV market is ripe for a midsize and a compact model. Currently sport utility vehicles make up 17.6 percent of the global market but the experts believe that figure could rise to 24 percent by the year 2020. “The SUV market is still growing, and it’s a key segment for all manufacturers,” Roman Mathyssek, a German analyst, told the Detroit News from Munich.

“The VW brand still has growth potential in SUVs, which could especially help them to build a stronger position in the U.S. and emerging markets,” added Mathyssek, albeit as politely as he could.

Michael Horn, a 25-year VW veteran who took over the embattled U.S. operations not long ago, has a better vision. “We’ll succeed only if we build the cars people want here,” he told NBC News. “For now we have to have realistic targets. The vision is right … long-term … but the timing is a huge challenge.”

The much-anticipated CrossBlue model will be joined by a “stretched” version of the VW Tiguan because insiders believe, without a full portfolio, VW will be unable to maintain the growth pace in an admittedly-intense competition for the American buyer.

Mark McNabb, the CEO for Volkswagen USA, is optimistic. “We are pleased with our core vehicles and TDI clean diesels continue to show strength in the market. With a full range of fuel-efficient vehicles, seven of which deliver more than 40 mpg on the highway, we anticipate a steady demand.”

A vexing problem is VW must improve quality problems. A recent J.D. Power Dependability Study revealed VW is well above the industry average of 133 problems per 100 vehicles. While industry leader Lexus has a 68, Volkswagen is 158.

But the biggest problem of all is that Volkswagen must make a move. The company may be the largest manufacturer in Europe but the longer it waits to open a SUV line the longer it will take to compete and, in honesty, even the news agency Reuters knows VW is six months behind already.

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