Q&A: JIMMY ELLIS, VOLKSWAGEN NATIONAL DEALER ADVISORY COUNCIL

VW dealers: We need fresh product, better marketing

Jimmy Ellis
Age: 58
Dealer since: 1995
Dealerships: Jim Ellis Volkswagen Atlanta, Atlanta; Jim Ellis Volkswagen Kennesaw, Kennesaw, Ga.; Jim Ellis Volkswagen Marietta, Marietta, Ga.
Average monthly sales: 235 new, 190 used
Quote: "We need [a mid-sized crossover] right now. We need it today. And any further delay is just delaying what we have to have to compete as a Tier 1 brand in the United States."
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VW dealers couldn't wait to put 2013 in the rearview mirror. Sales slipped month after month as the Jetta and Passat sedans were upstaged by shiny new competitors. No new sheet metal filled VW showrooms. Many dealers' profits evaporated.

This year, Volkswagen Group of America is starting fresh with a new boss in longtime Volkswagen AG sales executive Michael Horn. It will try a new tack with a new marketing chief for the VW brand in Nissan veteran Vinay Shahani.

The spring arrival of the next-generation Golf family ought to give dealers a lift. There are other signs of VW's long-term dedication to the United States, such as big investments in North American production and the possibility of a mid-sized crossover to come. Product quality, long a perceived fault, is steadily improving.

Staff Reporter Gabe Nelson spoke with Jimmy Ellis, chairman of the Volkswagen National Dealer Advisory Council and a VW dealer in Atlanta, about the 2014 outlook.

Q. How did VW dealers do in 2013?

A. It's been a challenging market for VW dealers. There's lots of good quality competition out there coming from every angle. VW is hanging in there, but there's no question -- just look at the numbers -- we've had our challenges in the marketplace.

What do you expect in 2014?

I'm expecting it to be better on two fronts. One, I think that not only Volkswagen but most of the other manufacturers are going to start to get their days of supply balanced. That's a key to margins and profitability and the cost of sale. With other manufacturers in our competitive set, when their inventories are out of balance, they're spending exorbitant amounts of money to get it back in balance. Also, Volkswagen is starting to get back into some nice product enhancements and new products in 2014. Hopefully that'll be followed up by some really good product announcements in 2015 and 2016.

Do you have any sales projections for 2014?

If you just look at retail, we're going to finish 2013 flat. Maybe just a smidgen down. Extrapolate that into 2014 and I'm thinking we'll be somewhere around that number. And that's Jimmy Ellis talking -- that's not any official number. If I'm forecasting with my group,

I'm thinking we can match or improve upon 2013's numbers a little bit, but do it in a little more quality fashion.

Your core models are the Jetta, Passat and Tiguan. How are they doing?

They're competitive products. No question about that. But the mid-sized sedan, compact sedan and compact crossover segments -- those segments are highly, highly competitive. The Tiguan is going to be upgraded and we think it's going to be more competitive than it is now.

What do U.S. dealers recommend for the next-generation Tiguan?

They've got to figure out how to get the cost down, and I'm not sure how they're going to do it. It needs to have more content at a more competitive price. If they can get that done with the Tiguan, that will be a nice vehicle in that segment.

What about the mid-sized crossover VW is developing, based on the CrossBlue concept from the 2013 Detroit auto show?

We need it right now. We need it today. And any further delay is just delaying what we have to have to compete as a Tier 1 brand in the United States. Volkswagen wants to be there. They expect to be there. They have the resources to be there. And without this vehicle, they're not going to be.

Are dealers happy with the new turbocharged four-cylinder engine in the Jetta, Passat and Beetle?

That is an incredible engine. If it doesn't win any awards, I'll be surprised. It's an incredible drivetrain and that's kind of the big story for us in 2014.

What about the redesigned Golf?

The Golf is our second big story. The Golf family will be introduced in the second quarter of 2014. That vehicle has already won numerous awards in Europe and we're really excited about getting that vehicle in. Now, the Golf has never really been a big volume model for the U.S., but I'm really expecting it to carve out some significant volume. It could easily bring double the volume that it has in the past. It's that good. The question is: Is the U.S. ready to start adopting the quote-unquote five-door hatchback? They're very successful in Europe and around the world, and I think this one may very well start to catch on.

Do you expect any other product changes in 2014?

The Jetta facelift and the Touareg facelift are coming in the third and fourth quarter. I haven't seen them up close -- they did give us a little snapshot of them this past year -- but I think it will be positive. Don't look for them to be dramatically different. You know, that's not the German way. They don't just make dramatic changes in styling. But I think it'll be a nice positive lift and you'll be able to tell the difference, for sure.

There was some unhappiness in the dealer body in 2013. Why?

Obviously, when dealers aren't making the money they want to make or expect to make, then they're not going to be real happy. They're going to illustrate that in the NADA dealer survey, which they have. We're working as a council and as a brand on a lot of the issues that are creating most of the angst with the dealer network, and I'm hoping for some positive change as we go into 2014.

One of the issues dealers have raised is VW's Variable Bonus Program. What is it?

The bonus program is a performance-based program with objectives. If you achieve those objectives, you are rewarded for doing so. When you're in a growing sales environment, it's a little bit easier to deal with. But that said, it becomes a real challenge and creates a lot of challenges within the dealer network when you're in an environment like we've been in this past year.

VW issued new loaner car requirements last year. How were those received?

The loaner program that we have now is an expensive one. One of the things we as a council have been trying to do is to find a way to keep the benefits of a good loaner program -- because it is a benefit to customers -- but take some of the cost out of it and try to make that a better program from an affordability standpoint. A loaner program costs money. It just does, to have a fleet of any size. And it's a cost of doing business today in the competitive environment we're in. The question is, how can you have a loaner program that is affordable for the dealer and affordable for the network and the brand? And we're working on that.

What were dealers telling you about it?

When you're a dealer that has had a different way of offering loaners to your clients -- maybe through a rental car company, and now you get a program where it mandates that you carry so many vehicles and a certain mix of vehicles, it can become expensive.

What do you think of VW's marketing?

In the last few years, Volkswagen has been really creative in a lot of their spots, but they haven't necessarily been tactical. It's been more about branding -- about really trying to establish VW as an interesting and unique brand.

What I haven't seen enough of is a real call to action, a real reason for someone to come in and drive one of these vehicles. That's one thing that we're looking to do in 2014 is improve our marketing, and find a way to make it more tactical in nature.

We want people to say: "Let's go see about VW today." That's the message that we as a council have been trying to send.

Have you heard any good ideas from VW for sending that message?

I'm not sure exactly how that's going to be delivered. They haven't really shown us any creative for 2014, but they are working on it. They've hired a new marketing director, Vinay Shahani. He's been with Nissan for 10 years, and he seems like a very bright individual. I did get to meet him. It'll be interesting to see his plan.

What about the creative advertising that former VW executives such as Tim Mahoney and Kevin Mayer put in place? Was that not working?

It was appropriate, and it's still appropriate. You always have to have creative branding that gets people long-term interested in the brand. But we're in a different time and place now.

The Passat has been in the marketplace awhile. The Jetta has as well. In fact, both of them need freshenings. And we're in this product lull period. So, creative about the brand -- that's not going to drive traffic today.

We need to drive traffic. And that means, yes, we're having fire sales. We're trying to get people to come in and take a look at our products, and you have to be competitive to do that. That's just how it works.

VW has been fighting a reputation for poor quality and high repair costs. The company says quality is up and warranty costs are down. Are the dealers seeing it?

Absolutely. We have definitely seen the quality improve. Our warranty cost per VIN has plummeted. And from a businessman's perspective, that has had an effect on our service departments.

Volkswagen dealers historically have been used to having their shops full of Volkswagens for repair work and maintenance work. Well, the repair work has really fallen because the quality has improved so much in the last three years. So, that's the good news.

I think it's always good news to have good, strong quality. But the downside effect, at least in the short term, is that you're losing business in your service shops.

Volkswagen dealers now are having to move into a different environment that is more like the one the Asian brands have had over the years.

When you have such good quality products, you have to reshape your service departments around maintenance and service interval repairs. You have to get really good at selling service.

How well is VW Credit serving the dealers?

I think VCI is doing well. I think the dealers are happy as a whole with VCI. They are competitive, and I would say they are supported very heavily by the brand.

The brand puts in money and subvents deals here and there -- as it should -- so we are able to advertise a competitive lease, like the one that we have right now on the Passat, and we are able to advertise a pretty good offer on a finance rate.

VW recently launched a connectivity service called Car-Net that is similar to General Motors' OnStar service. What do dealers think of it?

They've launched it, and we as a network have not done the best job we could of adopting it and communicating it to our clients. Volkswagen needs to work with us and try to make sure that it's more prominently promoted. It's a really neat tool. For the clients, it's a real benefit.

From being a GM dealer, I think our renewal rate on [OnStar] subscriptions is somewhere around 50 percent, and I would chance to say that once we've had two or three years of Car-Net under our belt, that is probably the renewal rate we'll get.

But right now, it's not that. It's just not widely known that it's available, and what all the really neat functions are.

I'll hold my hand up as a dealer: We've got to do a better job of educating our clients.

VW wants to be a mass-market brand in the United States, like Toyota or Honda. But it has always been a bit premium. Which should VW's identity be?

It should be that they're a premium brand in a volume segment. That's what they've always been to me.

We've always sold Volkswagen as a little bit better of a vehicle than the Asian competitors: better performance, better build quality, better design.

I don't think they should be yet another Toyota or Honda, just with a different badge. That's going to be almost impossible to do.

There's already Toyota, Honda, Nissan, Hyundai and everybody else that wants to be like them. What we want to be is Volkswagen, but competing in a volume segment with a volume scale. I believe it can be done -- in fact, I know it can be done -- but it's going to take a lot of great product and some really good marketing and some really bright people.

I think all of that's doable. And I believe we'll get there. But I don't think we need to try to be different from what we are.

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