New products at hand, VW dealers gain momentum
Age: 34 Dealer since: 2007 Dealerships: Dorschel Volkswagen, Dorschel Kia, Dorschel Toyota, Dorschel Lexus, Dorschel Nissan, Dorschel Infiniti, Dorschel Fisker, Dorschel Mini in Rochester, N.Y. Average monthly VW sales in 2011: 93 new, 30 used Quote: "I think you can make an argument it was our best year in our history."
Last year was a banner year for Volkswagen's U.S. dealers. Sales were up. Profitability climbed. And showrooms were busy, especially toward year end with the arrival of two redesigned staples: the mid-sized Passat and iconic Beetle.
Volkswagen AG is making an aggressive pitch to woo more U.S. buyers to the Volkswagen brand, and its dealers are on the front lines, striving to turn the brand's ambitious sales goals into a reality. VW division hopes to sell 800,000 vehicles annually in the United States by 2018. Last year, the brand reported total U.S. sales of 324,402 vehicles, a 26 percent jump over 2010.
With the brand gathering momentum, VW dealers have high hopes for 2012, said Will Trafton, chairman of the Volkswagen National Dealer Advisory Council.
The brand will have its first full year of sales of the Passat and Beetle, along with greater availability of the high-volume Jetta. A redesigned CC arrives at dealerships in the spring. VW's new factory in Chattanooga, which opened in May, is helping to even the flow of inventory on the now U.S.-built Passat.
Still, supplies on many hot-selling vehicles will remain tight. Dealers, too, are reworking their operations to support the higher sales targets, which means increasing new-vehicle stock, hiring more staff and expanding service bays, Trafton said.
Trafton, who owns a VW dealership in Rochester, N.Y., spoke with Staff Reporter Christina Rogers.
How was 2011 for VW dealers?
I think you can make an argument it was our best year in our history. Our volume was up significantly for the brand. Our two major core products are fresh. We had the launch of the new Passat, which was [Motor Trend] Car of the Year. We had our first full year of the new Jetta. Dealer profitability also was up significantly.
What are the major issues heading into 2012?
We have some issues that we need to work through as a dealer body and with the brand that are related to our growth. All of the infrastructure from the brand perspective and from the dealer perspective was, as of a couple years ago, geared toward a dealer body and distribution company selling 250,000 to 350,000 cars a year. And we're rapidly moving into an environment where we'll be selling 500,000-plus.
Both the dealers and the brand have moved proactively to respond to that challenge. But it's a very significant challenge. It's everything from how many service bays are at each individual store and what's the overall staffing and technical training at the store level, what process does VW use to allocate cars to dealers. And all those things are different at 500,000 cars than they are at 250,000 cars.
The next set of really big challenges is the shifts in the industry, the changing compliance environment. Another would be the evolution of consumer shopping behavior as technology plays a bigger and bigger role in how people purchase, service and own vehicles. We need to respond from a brand-dealer-communications perspective and from a customer-experience perspective at individual dealerships.
How are buyers reacting to the redesigned Passat and Beetle?
People really like the redesigned Beetle. I think the Beetle launch was a little bit overshadowed by the Passat launch. It's very challenging for a brand to launch two major products within two months of each other. The opportunity still exists for a higher level of public awareness of a new Beetle. When I look at my overall traffic numbers and close rates, the traffic numbers on the Beetle are lower than I would have expected. However, those folks that come in and look at the car are buying it, which leads me to believe there is an awareness opportunity there. All that being said, Beetle sales are up for November-December over the prior year.
Last year, VW began building the Passat in Chattanooga. Has that had any effect on sales and inventory or even consumer perception?
I think the Passat is a game-changer for VW in the U.S. and for VW dealers. First of all, at a global level, it's a real commitment to primarily the U.S. market but also the North American market. From a brand perspective, we have better visibility and support.
From a production and inventory perspective, I'd like to say that it's increased the available supply of cars. To some degree, it has. The throughput is up. But it's been so popular that ground stock from a dealer perspective isn't any greater than before. What has changed is we have a much shorter supply line. The ability of the sales company to adjust the model trim mix and options to meet market taste is much greater, as is the consistency of the flow of product. When you're building a Passat in Germany for many different parts of the world, you'll build each allocation in chunks. So what we used to experience is sort of a stop-and-go nature to the product delivery, whereas we have a much more consistent level of production with the domestic plant.
VW decreased the base price on the Jetta when it was redesigned for 2011. Has that been successful in attracting new buyers?
It's clearly been successful. However, I think it's been misunderstood and mis-covered. The broader perception is that the Jetta has less content and is lower priced, but if you look at the average transaction price with the new car versus the old car, it really hasn't moved that much. In fact, I think it's about the same.
What VW did was expand the price range of the Jetta. The old car really only competed against the Civic or the Corolla in the higher trims levels, whereas the new car represents the full price range of the competitive product. So what that has done is made the Jetta relevant to a much larger percentage of buyers in that segment.
Where are you seeing the new buyers come from?
I don't think there is a single brand that is giving us the majority of the new customers. We're taking them from everybody: some from the Asian brands -- an example would be Civic customers -- and some from the domestic brands.
What are your expectations for the redesigned CC coming this spring?
The redesigned CC is a significant improvement primarily because the original car was designed with two seats in the second row of seating. The redesigned car has a full three seats in the back, which was probably the only significant complaint that I heard from customers and dealers. I think the CC's opportunity is probably somewhat tempered in that when it initially launched we didn't have a competitive Passat next to it. The redesigned CC is a plus. I'm excited about it. In a lot of ways, at least from a sedan perspective, it really speaks to the uniqueness of the VW brand. But from an overall sales perspective, we're not nearly as dependent on it as when it launched three years ago.
How might economic troubles in Europe impact VW's U.S. dealers? Are dealers concerned?
I don't think so. So long as the European economic crisis doesn't significantly impact the U.S. economy on a macroeconomic level, what's going on in Europe is, ironically, good for U.S. Volkswagen dealers. One, the exchange rates are as favorable right now as they've been in quite a long time, which generally translates into better product availability and potentially some more flexibility on incentives and pricing. And, again, like the factory in Chattanooga, the strength of the U.S. market relative to the European market makes both the U.S. sales company and the U.S. dealer network more important to the corporation as a whole in terms of hitting their objectives for the year.
What must the factory do to help you sell more vehicles?
The single biggest issue the dealer body had this year was actually product availability.
We're thrilled to have the new factory in Chattanooga. But the new Passat TDIs are being sold before they hit the ground, and there is a lot more demand than availability.
We need to continue to work on the distribution allocation and production process.
And the last piece I would say is to continue to develop a reputation for quality and affordability. When you look at the customer consideration for our brand, those are probably the two biggest misconceptions that keep people from actually walking through the door of a dealership to look at a car. If you look at brand awareness, everybody knows what Volkswagen is and has a fairly positive view of it, but if you look at actual consideration when it's time for me to buy a car, a few years ago a really significant part of the buying public didn't look at a Volkswagen because they perceived them to be too expensive or less reliable.
We've made significant progress in the last four years with the relaunch of the Jetta; the same with the Passat. We've improved in both of those areas, but there is significant room to grow in buyer perception when you compare the VW brand to, say, Honda.
VW executives have ambitious goals for the U.S. market. What makes you confident they can meet them?
The simple answer is they're doing it everywhere else in the world. One piece is they can do it because they are doing it everywhere else. Then No. 2 is because of their size and resources. Because they've determined it's something they're going to do, they have the resources to make it happen. The last piece is as a retailer, I have a pretty good feel for the overall competitiveness and attractiveness of the vehicles they have out and coming and I feel very bullish on our product mix.
What's the days supply, and is it where it needs to be?
Days supply for most of this year has been somewhere around 30 days, and that's probably about half of what it should be.
Do you expect that profitability to increase in 2012 and why?
I definitely expect it to increase for three reasons. First, we've done a very good job of developing our certified pre-owned program, so used sales at the average Volkswagen dealership are up significantly. Second, because we've increased our selling volume on both the new- and used-car side, the future is bright for our service department.
Finally, overall volume will be significantly higher than 2011, with a full selling year of Passat, full selling year of Beetle and better product availability on Jetta, which has been constrained this year based on production levels.
Are dealers doing any incentivizing?
Yes. But it sounds counterintuitive. Because there is so much demand in the marketplace, and each dealer is trying to grow their piece of the pie, the way to get more cars from the manufacturer is to sell them at a faster rate than the brand sells nationally. Volkswagen dealers have really shifted to a volume-sales mentality that's similar to what you'd see at a larger Honda store. So the average dealer margin on a Jetta is really similar to the average dealer margin on a Civic whereas it didn't use to be.
Is there still a problem with consumer perception of VW's quality?
Yes. It takes a long time to correct that perception. Probably the best example that I can think of for a brand that has really overcome a quality perception issue is Hyundai. It took them eight or nine years of pretty consistent awards and accolades and effective marketing. We're probably three years into that process. I think we're actually moving faster than they did, but there is still work to be done.
What is VW doing to counter that perception?
It's pretty simple, really. It's focusing on designing quality into the cars at the start. It's developing faster, better communication between the field and the manufacturing facilities, and responding to problems when they occur. And then, it's a commitment to think about the customer experience when problems are discovered and how they're resolved. And the brand has done work on all three of those pieces.