VW needs boost in U.S. to reach global sales goals

If Volkswagen AG Chairman Ferdinand Piech and his protégé, CEO Martin Winterkorn, hope to consolidate VW's position as the world's largest automaker by 2018, American consumers will need to buy a lot more new Volkswagens, Audis and Porsches.

Despite a recent upswing in the United States, largely on the strength of the redesigned Passat and Jetta sedans, VW for the past three decades has "underperformed substantially" in the United States compared with the group's other major markets, concedes Tony Cervone, executive vice president of group communications for Volkswagen Group of America, based in Herndon, Virginia.

But VW's trajectory is rising in the United States, where the company has "done a better job than expected of moving out of its niche role" as a purveyor of expensive, German-engineered cars, according to Jeff Schuster, senior vice president of forecasting at LMC Automotive in Troy, Michigan.

Much of its recent success is attributed to the overhaul of the Jetta and the Passat, both of which were specifically tailored to better suit mainstream U.S. consumers and re-engineered to be built at a much lower cost than their predecessors. The compact Jetta is assembled at VW's sprawling Puebla factory in Mexico, while the mid-size Passat is the first car to roll off the line at the new $1 billion Chattanooga, Tennessee, plant that opened last year.

"We now have products that are German-engineered, but are more affordable" than comparable models from such German competitors as BMW (>> Bayerische Motoren Werke AG) and Daimler's (>> Daimler AG) Mercedes-Benz, said Cervone. But "we have to have more core products," he added.

The company's circuitous route back to its German roots as the "people's car" has begun to bloom in the U.S. market, where VW Group sales in the first six months of this year - including those of Porsche - climbed 29 percent to 290,333. That puts VW on pace to reach 575,000 units for the full year - just over halfway to Winterkorn's goal of 1 million annual U.S. sales by 2018.

By then, VW wants to sell 800,000 VW-brand and 200,000 Audi-brand vehicles in the U.S. market.

But U.S. sales are still well behind those in such countries as China, where the German automaker has been the leader for more than two decades and still accounts for one of every six new vehicles sold. Last year, VW Group sales in China totaled 2.6 million units - 27 percent of the company's global sales of 8.27 million.

In comparison, the U.S. market accounted for just 5 percent of the group's worldwide total. Winterkorn has charged Jonathan Browning, CEO of Volkswagen Group of America since September 2010, with doubling that contribution to 10 percent of global sales by 2018.

To do that, VW has tentative plans to boost the Chattanooga plant's annual production capacity to 500,000 units, while adding several new models to the U.S. mix. They include a lower-priced successor to the Tiguan compact utility vehicle and a larger, seven-passenger crossover, analysts say.

Capacity expansion is not the only concern. VW also has to broaden its U.S. sales network and convince dealers that "they need to think past just being a lower-volume, boutique manufacturer and move into the larger game," says Michael Robinet, managing director of IHS Automotive Consulting in Northville, Michigan.

The new Passat, whose lower sticker price has made it more competitive with such traditional high-volume mid-size competitors as the Honda Accord and the Toyota Camry, has enabled the company "to move in that general direction," Robinet said.

A sign of Winterkorn's recognition of the importance of the new Passat and the potential of the American market: Between the car's public unveiling at the Detroit Auto Show in January 2011 and the start of sales nine months later, the CEO visited the United States an unprecedented seven times.

Says Cervone of his boss: "He's very focused in the success of this car and this market."

(Reporting By Paul Lienert; Editing by Dan Grebler)

By Paul Lienert

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