By V. Dion Haynes
Washington Post Staff Writer
Monday, October 5, 2009
Volkswagen's U.S. chief executive, Stefan Jacoby, sat on the front end of "Max," the black 1964 Beetle with the smart-alecky German accent that figures prominently in the automaker's latest TV ad campaign. The car is a fixture on the sixth floor of the company's corporate office in Herndon, but maybe not for much longer.

In relocating the domestic headquarters from suburban Detroit last year, Jacoby is steering the brand in a new direction that focuses less on the iconic Beetle and cars aimed mainly at young, trendy buyers and more on the expectations of middle-class buyers -- such as cup holders, entertainment systems and other creature comforts.

So in repositioning its brand for mass appeal, Volkswagen is thinking it may have to jettison Max and its niche image.

Germany's Volkswagen is "an icon brand" and "there are a lot of great stories and memories" about the Beetle, Jacoby said in an interview. But, he added, "to play a bigger role here, we need to modify and adapt to American consumers' needs."

Jacoby said the move to the Washington area is a main component of his growth plan. The company, whose charcoal-gray U.S. headquarters houses 415 employees and contractors, has hired 200 people for marketing, communications, sales management and finance jobs, officials said. The company intends to hire about 35 more staff members by 2012.

Like other automakers, Volkswagen Group of America -- which includes the Audi, Volkswagen, Bentley and Lamborghini brands -- has been hit hard by the recession. The U.S. government's "Cash for Clunkers" program offered the automaker a temporary boost in July and August, but sales fell again in September when the program ended. Sales from January to September in the United States decreased to 220,616, from 243,993 during the corresponding period in 2008, a decline of nearly 10 percent, according to MotorIntelligence.com.

Still, the Volkswagen brand managed to increase its market share to 2 percent in 2009 from 1.4 percent in 2008. And Jacoby said he is determined to quadruple companywide U.S. sales to 1 million by 2018.

Officials of the Volkswagen brand -- who used Max during the past year to promote eight new vehicles, including a minivan, a sport-utility vehicle and the clean-diesel Jetta, to mixed results -- are pinning their hopes on a bigger compact sedan that will be introduced in 2010 and a midsize sedan that will be manufactured the following year at a new plant in Chattanooga, Tenn.

Jacoby, 51, offered few details about the cars, other than that they will be among the first Volkswagen vehicles built specifically for American taste. The cars will have a decidedly less European feel, with a more user-friendly steering wheel and entertainment system, an accelerator and brake pedal that are farther apart, and larger cup holders.

"Here, there is more cruising and long-distance driving. In Europe, there are more tiny roads and you drive more actively than in the United States," Jacoby said.

"We Germans drive and we are not drinking in the car," he added. "Americans have breakfast and coffee in the car. We have to adjust to this."

Analysts expressed skepticism about Volkswagen's plan to tap into the mainstream, saying that by changing what makes the vehicles distinctive, the automaker runs the risk of turning off its loyal customers while failing to woo new ones.

"The concern is that if they dilute [their image] too much they will end up upsetting their owner base, which will go somewhere else," said Wes Brown, a partner in Iceology, a Los Angeles-based consumer research and consulting firm that follows Volkswagen.

At the same time, he added, "you may struggle to get a new base. If I'm a Toyota or Honda owner, why am I going to leave?"

In addition to overhauling the image of the Volkswagen brand, Jacoby is upgrading the network of 577 dealers around the country. Half of the dealers now sell only Volkswagen models, and Jacoby wants to increase that to 65 percent, a move he said would improve the quality of the operations for customers.

The automaker plans to offer more diesel-powered vehicles in the United States. Volkswagen's diesel vehicles, the Jetta TDI and Jetta SportWagen TDI, were popular over the summer and virtually sold out under the Cash for Clunkers program.

Company officials said a key part of their growth strategy will be to expand Audi, whose share in the luxury-car market increased to 8.3 percent this year from 6.4 percent last year. Audi officials say they do not intend to duplicate the Volkswagen strategy in Americanizing the cars. Audi, which has introduced 19 car lines between 2006 and 2008, intends to open several new dealerships, including operations in Chantilly, Alexandria and Silver Spring.

"We are raising our profile," said Johan de Nysschen, president of Audi of America. "Our goal is to have 10 percent of the luxury market share in the Washington area by the end of 2011," up from the current 8.5 percent.

Audi, which has introduced 19 car lines between 2006 and 2008, intends to open several new dealerships, including operations in Chantilly, Alexandria and Silver Spring.

"We Germans drive and we are not drinking in the car," he added. "Americans have breakfast and coffee in the car. We have to adjust to this."