VW chief set for new era in North America

Has the recession led you to revise your long-term strategy of selling 1 million units in the United States by 2018?
No. Together, VW and Audi will sell 1 million -- 800,000 for VW and 200,000 for Audi.

Volkswagen is preparing to choose suppliers for the mid-sized sedan it will produce at a factory under construction in Chattanooga, Tenn., said Stefan Jacoby, CEO of Volkswagen Group of America Inc. Most of the suppliers will be American, Jacoby said. The car, which was designed for the United States, is scheduled to debut in 2012.

Before that happens, two other VWs will be replaced. The next-generation Golf -- which will return to that name after having been called the Rabbit in the United States -- will be launched this fall, followed by a redesigned Jetta next year.

Jacoby said 2009 will be dismal for the market as a whole. He expects no recovery until 2010. Volkswagen's sales are down this year, but its market share is up. Jacoby aims to maintain VW's current 2 percent share while driving down inventory through production cuts.

Jacoby, 51, became head of Volkswagen in America in September 2007. Before that, he was executive vice president for global marketing and sales for Volkswagen Group from 2004 to 2007. Jacoby was responsible for VW's Asia-Pacific region from 1997 to 2001.

He was interviewed by Staff Reporter Diana T. Kurylko in early April.

What is your assessment of Volkswagen's performance in the first quarter, and what will the rest of the year bring?

It's difficult to predict what will happen this year. We sold fewer than 50,000 VWs and gained market share.

In what segments did you gain market share?

We have a 1.9 percent share of the total U.S. market, compared with 1.4 percent in 2008. We gained sales for all the new vehicles that were launched last year -- the Routan, the Tiguan and the CC [a Passat-based sedan]. We sold more than 2,000 CCs last month. The Routan is gaining segment share.

The market is down between 35 and 40 percent, fluctuating month by month. We do not expect any recovery in 2009. We hope a scrapping program could stimulate consumer demand, and the fleet business has recovered a little bit.

How is your fleet business?

We are almost not in it, which is healthy and by choice. We are now generating a few new fleet sales, but we are continuing with our strategy to keep fleet sales below 10 percent. That's the level we have had in the last few years.

You are not hopeful about the overall market this year?

No. I believe the market may come back in 2010 or maybe by the end of 2009. I believe that recovery would bring us back to a level of 13-14 million vehicles. A market higher than this won't come back short-term.

How will VW cope? You have avoided some of the higher incentives that your competitors have used, but sales for some vehicles are slipping. Rabbit sales are down dramatically, although that could be because of the run-out. But even sales of the fuel-efficient Tiguan SUV are low.

The Rabbit is in a phaseout. The Tiguan is making its way -- we sold more than a thousand last month. We will not increase our incentives. We will not participate in the heavy incentive spends of some of our competitors. We are driving the business on a short-term basis. It is important for us to stabilize our market share at about 2 percent. It is also important for us to reduce our stock situation for our dealers.

How are you reducing your days supply of vehicles? By bringing fewer cars in?

Of course. We have adapted our production accordingly. One of the objectives we have is to support our dealers in floorplan. We aren't pulling out of it.

What percentage of your network is in trouble?

Less than 10 percent. About 55 percent of our dealers are affiliated with domestics, and perhaps that is where the trouble is coming from. The network, on average, is profitable

What is their return on sales?

On average, it is about 1.8 percent, and the exclusive dealers are higher at about 2.0 percent.

What can you do for dealers who get into trouble with other franchises?

Our hands are tied, for legal reasons. We have an eye on it. What we can do, we do -- and do it by floorplan, by having effective retail offers in the market, by reducing stock significantly and, when we are legally allowed, by having a close relationship with financial services.

Have many dealers closed recently?

Six dealers have closed since October, but this is a natural rate for us. There have not been a significant number of dealer closings because of the economic crisis. We have maintained a 575- to 600-dealer count for about 15 years.

Can you give us an update on the Chattanooga factory you are building?

We are on track with the construction and for selection of suppliers.

When will you select suppliers?

Within the next few months. I can't give you details on how many have been chosen. They will be in a supplier park, and they will be mainly American suppliers.

What will be the local content by value?

About 80 percent. The engine will come out of NAFTA -- we have capacity for gasoline engines out of Mexico, which we will utilize. Diesel engines still come out of Europe.

When will you go into pilot production?

The market rollout will be in the spring of 2012. The start of production is not yet defined.

Has the design of the mid-sized sedan been approved?

Yes. We showed prototypes to part of our dealer council in Wolfsburg two weeks ago, and they were very excited. We also showed them what's coming in the next few years.

How much different will it be from the Passat sedan?

Very different. It will be bigger and sleeker, and it has items necessary for Americans -- space, seat comfort, cupholders, Bluetooth and other electronics. Very importantly, it remains a VW. It has been totally designed and engineered for the needs of American consumers.

Does this mean you won't include some features that you need in Europe, like heavy-duty brakes that can stop the car at high speed on the autobahn?

Safety is one of our claims. We won't make any compromises.

What price range are you targeting?

It will start at about $20,000.

How can you economize on the new car without sacrificing performance?

Mainly by localizing production. There will be features that some of our customers will wish we had on all of our vehicles -- like Bluetooth connections. It will have the latest technology, like a new navigation system.

And you'll use existing engines?

For now, we'll use the 2.0-liter and the 2.5-liter optimized -- which we're doing for the Golf anyway.

Any decisions on the second vehicle?

No, stay tuned. We are considering a compact SUV, a mid-sized SUV and the Polo family -- which hasn't been decided.

When does the next-generation Polo come out, and will it come to the United States?

It was at the Geneva auto show in March. We haven't decided whether to bring this vehicle into the United States. We have introduced the hatchback in Europe. We believe -- and dealers have confirmed this -- that the vehicle is too small for the American consumer. We have alternatives, and these could be a Polo sedan and perhaps later a hatchback with more space. We are investigating what model we should start with and when we should start -- in 2011 or 2012.

What price are you looking at for the Polo?

Under the Jetta -- starting at $13,000 and going up to $15,000.

Where does the Jetta fit in your product strategy with the new mid-sized sedan coming?

The Jetta successor will be between the Polo and the new mid-sized sedan. It will compete with the Toyota Corolla and Honda Civic.

How big will it be?

It will be bigger than today's car, and it will be longer and wider. It comes in the fall of 2010.

You are changing the name of the Rabbit back to the Golf with the model change this fall, but will you keep the Jetta name?

The naming is not decided. It is one of the strongest nameplates we have in the United States. This is the biggest market. We sold around 100,000 last year.

What enhancements will the Golf have when the new generation comes to the United States?

The biggest is that we will offer the Golf with TDI diesel technology -- the same engine we have in the Jetta. We believe 30 percent of the Golfs could be sold as diesels.

What will the price be?

About $17,500, which is where it is right now. We have put in a lot of technology to make the car lighter and more comfortable. It's not that much bigger. The interior design is more refined.

You can reach Diana T. Kurylko at

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