Volkswagen struggling to win over American consumers
09-29-07, 09:07 AM
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Volkswagen struggling to win over American consumers
http://www.post-gazette.com/pg/07270/820851-185.stm
By Don Hammonds, Pittsburgh Post-Gazette
Roberto Schmidt/AFP/Getty Images
Volkswagen hopes move to Virginia will put spark in U.S. operations.
Volkswagen, which announced earlier this month that it was moving its North American headquarters out of the Detroit area to suburban Washington, D.C., is facing serious challenges that a relocation alone cannot solve, analysts say.
"I don't think it makes much difference where their headquarters are," said Tom Libby, senior director of industry analysis for J.D. Power Information Network. "They have much more important issues that they must deal with.
"They have some significant holes in their product portfolio that they need to fill, and they tend to be high priced in the segments that they do compete in. And in general, they do not do well in relation to other brands in terms of quality measures."
Jack Nerad, editorial director for Kelley Blue Book, said executives in Wolfsburg, Germany, "look out of their windows and see all the Volkswagens on the road and say all is well with the world. They don't understand that they are struggling mightily in the North American market, and that there are ways to do things better."
For its part, Volkswagen seems to have gotten the message. When the company announced it was moving to Herndon, Va., starting in April 2008, it also announced a "new strategic direction" along with a dramatic streamlining and restructuring of the company's North American operations.
"With these changes, Volkswagen of America drives the future," said Stefan Jacoby, incoming president and chief executive officer of Volkswagen of America. "It reflects a major new commitment to achieving our company's goals in the world's largest car market. We are excited about moving our headquarters to northern Virginia, where we will be closer to key markets and customers."
He also pointed to a work force reduction of about 800 from roughly 1,400 currently, through attrition, early retirement and voluntary separations.
He said Volkswagen would put a premium on connecting with more customers and "fostering a culture of fresh ideas and bold thinking. Additionally, the company will focus efforts on producing more cars designed specifically with the U.S. market in mind."
But until those things happen, a look at sales figures show the struggle that Volkswagen is having.
Overall sales were down 7.5 percent for August compared with August 2006, and down 3.6 percent for the year so far.
But things are even worth for some key models.
Through August, sales of the Jetta are down 8.9 percent. The Passat is faring even worse, with sales off 31.5 percent for the year. Sales of the New Beetle are off 20.7 percent for the year.
Analysts suspect that one of the biggest issues is confusion over which markets are being targeted by these cars. In particular, the Jetta and Passat straddle the compact and intermediate markets.
"You can straddle markets if you're a huge player and can define segments for yourself, but Volkswagen can't do that," Mr. Nerad said. "With Japanese cars, it's easy to say what matches up against what, and the same is clear for domestics. But with Volkswagen, it's less clear how they match up against a typical Japanese or domestic product."
Auto industry buzz suggests that both cars will be changed dramatically in 2009, with the Passat finally growing to about the size of a Honda Accord or Nissan Altima.
Regardless, the price differences between the Passat and its competitors is telling. The 2008 Passat starts at $23,915, while the 2008 Toyota Camry starts at about $18,570, and the 2008 Accord starts at less than $21,000.
"Volkswagen products often are priced over the average price in their segments," Mr. Libby said. The Touareg sport utility vehicle "is extremely over the prices of others in its segment, to the point that we don't even included it in the mid-sized segment any more, but the luxury segment because of the price. And VW is not a luxury brand."
Mr. Libby said the "theory behind the higher prices always was that Volkswagen offered more than competitors -- a German driving experience that set the cars apart, thus justifying the price. But consumers don't see the value any more justifying that extra price. That's the reason their sales are down. Every VW brand except for the Rabbit is priced above the segment averages."
But market straddling and high prices aren't the only serious problems with which Volkswagen must grapple.
The brand also has developed a reputation for poor quality control and service departments that are mediocre at best, analysts say.
"There are some questions in a lot of consumers' minds about quality throughout the Volkswagen line," Mr. Nerad said.
As for the service department woes, he said, "I think they might be overloaded for one thing. And then you have an issue where you have a brand that's not doing real well right now, so a lot of these dealers are not particularly strong at the moment. There's a bit of a struggle within some dealerships to service everyone, probably."
But Volkswagen has several advantages that can help them recover, Mr. Nerad said. For one thing, the company enjoys enormous good will built up over the years by the legacy of the Beetles, the sheer joy of driving the cars, and the lush appointments and interior details for which the company is respected around the world.
"I think that Volkswagen is your least expensive truly European vehicle, and to those fans who love them, they see European engineering, European elan, European styling and something they don't obviously get from Japanese or American manufacturers," he said.
What Volkswagen should do, Mr. Nerad said, "is pick a model to trumpet that they think is their best value or their standard bearer -- and keep hammering on it. In their salad days, the Beetle was that car. Now there really isn't one vehicle that represents Volkswagen, but it's possible that the Rabbit could be that car."
First published on September 27, 2007 at 12:00 am
By Don Hammonds, Pittsburgh Post-Gazette
Roberto Schmidt/AFP/Getty Images
Volkswagen hopes move to Virginia will put spark in U.S. operations.
Volkswagen, which announced earlier this month that it was moving its North American headquarters out of the Detroit area to suburban Washington, D.C., is facing serious challenges that a relocation alone cannot solve, analysts say.
"I don't think it makes much difference where their headquarters are," said Tom Libby, senior director of industry analysis for J.D. Power Information Network. "They have much more important issues that they must deal with.
"They have some significant holes in their product portfolio that they need to fill, and they tend to be high priced in the segments that they do compete in. And in general, they do not do well in relation to other brands in terms of quality measures."
Jack Nerad, editorial director for Kelley Blue Book, said executives in Wolfsburg, Germany, "look out of their windows and see all the Volkswagens on the road and say all is well with the world. They don't understand that they are struggling mightily in the North American market, and that there are ways to do things better."
For its part, Volkswagen seems to have gotten the message. When the company announced it was moving to Herndon, Va., starting in April 2008, it also announced a "new strategic direction" along with a dramatic streamlining and restructuring of the company's North American operations.
"With these changes, Volkswagen of America drives the future," said Stefan Jacoby, incoming president and chief executive officer of Volkswagen of America. "It reflects a major new commitment to achieving our company's goals in the world's largest car market. We are excited about moving our headquarters to northern Virginia, where we will be closer to key markets and customers."
He also pointed to a work force reduction of about 800 from roughly 1,400 currently, through attrition, early retirement and voluntary separations.
He said Volkswagen would put a premium on connecting with more customers and "fostering a culture of fresh ideas and bold thinking. Additionally, the company will focus efforts on producing more cars designed specifically with the U.S. market in mind."
But until those things happen, a look at sales figures show the struggle that Volkswagen is having.
Overall sales were down 7.5 percent for August compared with August 2006, and down 3.6 percent for the year so far.
But things are even worth for some key models.
Through August, sales of the Jetta are down 8.9 percent. The Passat is faring even worse, with sales off 31.5 percent for the year. Sales of the New Beetle are off 20.7 percent for the year.
Analysts suspect that one of the biggest issues is confusion over which markets are being targeted by these cars. In particular, the Jetta and Passat straddle the compact and intermediate markets.
"You can straddle markets if you're a huge player and can define segments for yourself, but Volkswagen can't do that," Mr. Nerad said. "With Japanese cars, it's easy to say what matches up against what, and the same is clear for domestics. But with Volkswagen, it's less clear how they match up against a typical Japanese or domestic product."
Auto industry buzz suggests that both cars will be changed dramatically in 2009, with the Passat finally growing to about the size of a Honda Accord or Nissan Altima.
Regardless, the price differences between the Passat and its competitors is telling. The 2008 Passat starts at $23,915, while the 2008 Toyota Camry starts at about $18,570, and the 2008 Accord starts at less than $21,000.
"Volkswagen products often are priced over the average price in their segments," Mr. Libby said. The Touareg sport utility vehicle "is extremely over the prices of others in its segment, to the point that we don't even included it in the mid-sized segment any more, but the luxury segment because of the price. And VW is not a luxury brand."
Mr. Libby said the "theory behind the higher prices always was that Volkswagen offered more than competitors -- a German driving experience that set the cars apart, thus justifying the price. But consumers don't see the value any more justifying that extra price. That's the reason their sales are down. Every VW brand except for the Rabbit is priced above the segment averages."
But market straddling and high prices aren't the only serious problems with which Volkswagen must grapple.
The brand also has developed a reputation for poor quality control and service departments that are mediocre at best, analysts say.
"There are some questions in a lot of consumers' minds about quality throughout the Volkswagen line," Mr. Nerad said.
As for the service department woes, he said, "I think they might be overloaded for one thing. And then you have an issue where you have a brand that's not doing real well right now, so a lot of these dealers are not particularly strong at the moment. There's a bit of a struggle within some dealerships to service everyone, probably."
But Volkswagen has several advantages that can help them recover, Mr. Nerad said. For one thing, the company enjoys enormous good will built up over the years by the legacy of the Beetles, the sheer joy of driving the cars, and the lush appointments and interior details for which the company is respected around the world.
"I think that Volkswagen is your least expensive truly European vehicle, and to those fans who love them, they see European engineering, European elan, European styling and something they don't obviously get from Japanese or American manufacturers," he said.
What Volkswagen should do, Mr. Nerad said, "is pick a model to trumpet that they think is their best value or their standard bearer -- and keep hammering on it. In their salad days, the Beetle was that car. Now there really isn't one vehicle that represents Volkswagen, but it's possible that the Rabbit could be that car."
First published on September 27, 2007 at 12:00 am
09-29-07, 10:30 AM
#2
"Mr. Libby said the "theory behind the higher prices always was that Volkswagen offered more than competitors -- a German driving experience that set the cars apart, thus justifying the price. But consumers don't see the value any more justifying that extra price. That's the reason their sales are down. "
Until VW can address the quality and reliability of their electronics before they address the "German driving experience," then they will further succeed on this side of the Atlantic.
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