VW dealers expect slower, still robust, growth in 2013
Dealer since: 1995
Dealerships: Jim Ellis Volkswagen Atlanta, Atlanta; Jim Ellis Volkswagen Marietta, Marietta, Ga.
Other brands: Audi, Buick, Chevrolet, GMC, Hyundai, Maserati, Mazda, Porsche, Volvo
Average monthly sales at VW dealerships in 2012: 202 new, 125 used
Quote: "Even with the Touareg and the Tiguan, there still is a missing element. We need that seven-seat, third-row vehicle."
Volkswagen hit a home run in 2012 with the redesigned Passat, the newly American-built sedan that paced the company to 35 percent growth in U.S. sales.
In these boom times for the brand, VW dealers are scrambling to hire people, expand their stores and adjust to new bonus and loaner car programs. They are also keeping an eye on the brand's plans for expanding its dealer network.
Staff Reporter Gabe Nelson spoke with Jimmy Ellis, the incoming chairman of the Volkswagen National Dealer Advisory Council and COO of an Atlanta dealership group with two VW stores, about the state of the brand.
How did Volkswagen dealers fare in 2012?
We ended up the year with a 35 percent sales increase over 2011, which led all of the large automakers. It was a really nice increase.
What do VW dealers expect in 2013?
We're looking for a much more manageable increase of 9 to 12 percent. We finished the year somewhere around 440,000 Volkswagens, and we're looking for -- let's call it a 10 percent increase, somewhere around 490,000 units. We're hoping that we will be able to get that done in a more manageable way.
What have been the biggest growing pains?
Adjusting to inventory and trim level disparities. You may anticipate you're going to sell so many of a particular trim line and you end up selling more of another line.
Other types of growing pains within the dealerships were trying to adjust the in-dealership processes, hiring enough salespeople to handle the traffic adequately. Those processes got challenged a little bit.
We certainly worked very hard to make sure that our VW clients would get the kind of treatment that they would expect, but it challenges a dealership. It's a good challenge to have, but it's a challenge all the same.
How are the redesigned Passat and Beetle faring after a full year on the market?
A fivefold increase [in annual sales] over the previous Passat body style -- that speaks for itself. It was a huge success, a fabulous launch that began in 2011 and really got its legs in 2012 as production ramped up at the new Chattanooga plant.
That vehicle was obviously one of the main drivers of our sales volume increase. And then, the new Beetle, when it was launched in 2011, didn't have all of the trim levels and equipment that the marketplace desired, so it was a bit of a spotty launch. They have corrected that and gotten a lot of those options and trim levels available in that vehicle.
What has been the early reception of the freshened CC?
The CC is a vehicle that competes in kind of a near-luxury segment with a lot of other very fine entrants in the marketplace. It just didn't do what we expected it to do, but I think you'll see more focus on that vehicle in the way of advertising and marketing in 2013 than it was able to receive in 2012.
How about the Jetta hybrid and Beetle convertible?
The Beetle convertible has been well received. We're still working through sold orders with that vehicle.
The Jetta hybrid has not been a huge success yet, but I think that's just because a lot of people don't know about it yet. It's a little new. I think as it gathers more marketing and more momentum in the marketplace, that vehicle will do fine for us, as hybrids do.
Hybrids are not going to be a very large percentage of your mix of sales. It's not that way with a lot of the other manufacturers that offer hybrids with their lineups, and I don't expect it will be for VW either.
We will have representation there, though. It's a great vehicle, gets great fuel mileage in the city, obviously, and I think people will have a nice choice when they come in and look at high-mileage options.
Are there still shortages of diesel models?
The TDIs have been in short supply for just about all of 2012. It looks like it's starting to balance out a little bit now, now that they've got production closer to the market demands. I think we've calculated the market demand to be somewhere between 30 and 40 percent of the sales mix for Jetta and Passat, and we're about there now.
Where does overall days supply stand? Are any models particularly overstocked or hard to come by?
I don't think we have any real shortages of anything that I'm aware of right now. For the most part you can get pretty much anything you need in the VW lineup now that they finally have gotten production closer to demand. My guess is that we're still in that 75 to 80 days range as a whole.
What brands have been the most common conquests for VW as it has grown its sales?
Where we see most of our new buyers come from is the Asian brands: Hyundai, Kia, Nissan and Honda. Those are the brands that we see most of our buyers shopping. It's been pretty constant. They have been our major competitors most of the time, though I would say it has probably shifted a bit more toward Honda and Toyota as of late.
How do you see the brand designing its fleet to cater to American drivers?
You've already seen some of it. The Passat is probably the best and most current example. That vehicle was designed and built primarily -- if not solely -- for the U.S. market and the U.S. consumer. U.S. consumers still want a little bit of a larger vehicle, they like lots of amenities in their vehicles, and, as you know, that's not typically in the German DNA, to design a vehicle with tons of amenities. It's more about the driving and performance feel of the vehicle.
What do dealers think of VW's plan for a seven-seat crossover?
I don't think there's any dealer that doesn't see that as a positive entry into our lineup.
It's no secret that the VW minivan is not going to be produced after this year, and so it's clear that even with the Touareg and the Tiguan, there still is a missing element. We need that seven-seat, third-row vehicle in the crossover lineup. That's a very hot segment and there's still plenty of room for growth.
How far would dealers like to see VW move toward being a full-line automaker? Could a pickup ever fit into the product line?
I don't think so. That segment is so well dominated by the top three and the second-tier players -- meaning Toyota and Nissan -- that it's really tough to get into that segment in any meaningful way without expending what I would consider too many resources. I would rather see VW focus on the crossover segment where they could firmly compete in the marketplace and keep closer to their competencies.
How profitable are VW dealers, and what direction is that heading?
I think the numbers are going to come in somewhere around 2.5 percent return on sales, which is a good, solid number. As we go into 2013, things are getting a lot more competitive. Everyone has plenty of production now. Now that the Asians have caught up from the tsunami and other production-restricting events, I think it's going to be a lot more competitive, so new-car margins are going to be under pressure in 2013. Pre-owned margins are going to be under pressure as well.
How does VW's redesigned bonus program work?
In 2013, what we call the variable performance bonus program, or VPB, has been amended a bit. It's still basically the same program that pays you and rewards you as a dealer for volume increases and volume achievements, both on the new and pre-owned side of your business. It's been amended a little bit: they've added a customer satisfaction index side of the bonus, they've added a couple other qualifiers and they've shifted some of the margins around. But it's basically the same structure.
How have dealers reacted?
I think it's been mixed. For the most part, dealers have benefited from the program, no question. Dealers have made money with the VPB program as a whole. But there is still a mixed reaction, because dealers as a whole are anxious about programs that have maybe a complicated formula or too many variables to achieve those incentives or those bonuses. This program is no different. Many manufacturers have programs that are similar. I would like to see them have a more simplistic program, but be that as it may, we have the program that we've had for a couple years. It has just been amended, and not to make it simpler -- it actually has added a couple more elements.
Do dealers just need to get used to it, or are changes needed?
The dealer council worked with VW of America over the past two to three months trying to cobble together some amendments and changes. Some changes were made -- not enough in my opinion -- but the program has been launched, and is set to go in place in January. There won't be any more changes this year.
What are VW dealers doing to attract more service business? Has the factory helped?
We have a program called Carefree Maintenance that's offered on every new Volkswagen. I really like the program. It is a tool to incentivize customers to come back to dealerships for service and maintenance, but a lot of times its communication isn't as good as it needs to be to make sure that consumers know and see the value in coming back for all of those services. I think the tools are in place, the network does a pretty good job as a whole, but we can do better.
Can you tell us about VW's new method of offering loaner cars to customers?
It is called the customer mobility program, and it is basically an evolution of a program that we had in place for many years. VW has always supported a loaner program, but in my opinion not to a very aggressive degree. This program is a way of VW putting more resources behind the program to make it more valuable for the network to offer to our consumers. The good news is they are delivering more resources to the program. They have shifted some resources from the previous program, like reimbursement for vehicles when they were in for repairs under kind of a rental car format. They have taken those funds and put them into the program that helps depreciate the vehicle and pay the dealer more money when they bring that vehicle out of service.
Are dealers comfortable with it?
Volkswagen has, in my opinion, made a pretty good effort in trying to cobble together the program to make it more affordable for more dealers to offer a fleet of loaners. However, they have made sure that you qualify for the bonus program by having a fleet of vehicles. To some dealers that was a bit of a rub, that the program was "pushed" on the network, because to qualify for the VPB portion of the bonus program, you needed to have certain vehicles put into your fleet by a certain date. After we experience the program for the first few months, I think dealers will see that it does have more value in it, although it does have more teeth.
Where do you see room to improve consumers' perceptions about the VW brand?
It's clear that what's out there in the marketplace is quality. Although our quality is as good as I've seen it in a number of years, there's still that perception that has lingered from some of our previous years. It's going to take more time to overcome that, but clearly, from the marketing tests we have seen and the rejecter surveys that have been done when individuals shop certain vehicles in our competitive group and choose another brand over VW, that seems to be the one that has risen to the top.
Are dealers comfortable with VW's plan to increase its dealer network?
There hasn't been a lot of noise about that recently. Most of that noise was last spring, when VW formally announced that they were going to pursue add points around the country. ... When that came about, the dealer council met with the administration and they pretty much ironed out the plan.
It said: all we're trying to do is fill in some points that are necessary, but our goal is to make sure that the throughput goes to where we see a quality, profitable network. We use Honda and Toyota and those others as a model, and we want to see that number somewhere around 800 to 1,000 dealerships. We know that makes a profitable dealership network and we know a profitable network is good for the brand and good for customers.
They get it. They understand. Dealers are always a little bit anxious hearing about add points, but dealers are more concerned about the philosophy of the company when it comes to throughput.