Volkswagen dealers, saddled with aging core models, aren't optimistic about 2004.
And the cavalry -- in the form of redesigned Golf, Jetta and Passat models -- won't be charging to the rescue this year. Dealers must wait until 2005 before those updated models arrive in U.S. showrooms.
VW is introducing niche products and tweaking aging products to help dealers get through this year.
The R32, the most powerful Golf ever, should arrive in dealerships this month. The Passat finally gets a diesel engine this spring, and dealers soon will be able to offer customers an all-wheel-drive Passat with the 1.8 T engine. Previously, customers could get 4Motion awd only on the higher priced 6-cylinder model. VW's first SUV, the Touareg, gets a V-10 diesel engine in the spring.
Aging product is not the dealers' only problem. They had difficulty in 2003 implementing the factory's new brand standards, which include both mandatory operating standards and optional dealer experience standards.
Gene Langan, chairman of the Volkswagen National Dealer Council and owner of Gene Langan Volkswagen in Glastonbury, Conn., spoke about the challenges ahead for VW dealers with Staff Reporter Ralph Kisiel.
How would you sum up the past year for VW in the United States?
It was a very difficult year for both the brand and the dealers. We started off the year with the ignition coil issue, which created many problems for our customers and our dealers. It generated a lot of negative press. Our sales were down, and the dealers had to deal with the new brand standards. It was not well received by the dealers. There were some 350 standards in our whole standards package. Dealers had the impression that the factory was too involved in our businesses.
Will the implementation of brand standards go any smoother in 2004?
Through the past year, dealers have worked with Volkswagen, and we're getting ready to launch much-simplified 2004 brand standards. They've taken a lot of the things out that we said are too involved in our businesses. On the financial end, we've eliminated volume bonuses and things like that. So the standards look like they will be a lot better for the dealers.
How is 2004 shaping up for the brand?
I believe 2004 will be a really challenging year for Volkswagen and the dealers. The biggest issue that affects us today, outside of our quality, is the age of our core products - the Golf, Jetta and Passat.
Hopefully the brand has realistic goals on what we can sell, and we tailor our marketing and our incentive programs to achieve those numbers. The age of the products is going to make it a difficult year.
Does VW have a hot product?
Right now our hottest product is the Touareg - especially the V-8 model. It's gaining strength. Our diesel cars are really desirable.
How will the diesel Passat do here?
We've had a lot of customers over the years that have asked why don't you have it in the Passat. I think it will be very good for that car. That one's probably here in spring 2004.
What product is the weak link?
It is our core products - Golf, Jetta, Passat and Beetle. These are the cars that have made up the lion's share of our volume over the past five or six years, and these vehicles are unchanged. That's going to be the biggest challenge for us.
Is there anything to help out before the 2005 product arrives?
The TDI Passat, which comes out in the spring, will help. Probably the thing that will help our Passat line the most is the 4-cylinder 4Motion. You will be able to get into an all-wheel-drive Passat for the mid-20s, which will match us up in some markets that we can't compete in right now. That's the one that excites me the most. I think that's going to be a good car for us, especially for dealers in the North and Midwest.
Another product that's coming and in production now is the Golf R32.
The R32 will be the fastest Golf ever, right?
Yes, it will. It's all-wheel drive, and the car's done very well in Europe. Right now we have a considerable order list on this car. So this should be a nice shot in the arm for us.
The Jetta was just freshened. Has that helped?
I think it improves the look of the vehicle. I couldn't say today that I think it has increased sales. But it's a nice upgrade. But the car to me still looks pretty much the same it did before. It's not as dramatic as the Passat upgrade in 2001.
What is the council's top priority in 2004?
As in past years, it's the quality of the products we sell and service. The quality hasn't been good. We've talked to them about this for years. The important thing to us is we have 800,000 cars out there still under warranty. We need to be able to get quick fixes and solutions to problems. We have to be able to take care of these customers. We have to be able to expand our goodwill policies.
Quality is on top of most dealers' minds. Most of our issues today are a result of our quality. Volkswagen must make sure that it does not make the same mistakes and repeat the same quality issues on the coming products - the 2005 products.
What are the other priorities?
Throughout the year in 2003 we had monthly incentive programs. We'd like more consistent, long-term quarterly programs. We also need to have stronger programs as the product gets older. We know they can't get involved like the Big 3, but we think that they can be more aggressive in their programs.
Another issue is our dealer profitability. Especially as the brand attempts to control their warranty costs, we feel they should achieve that by improving quality, not at the expense of the dealers.
Are dealers satisfied with the franchise?
I think the J.D. Power report showed we rated them near the bottom. I think any time your sales go down and your profitability starts to lessen, satisfaction is lowered. Just judging by the phone calls I get, I would think there's a lot of room for improvement there.
Will the new national/regional council system address problems faster?
Yes. We're trying to be proactive too, to be involved in things that are going to affect our business.
We want to be involved with the factory, to be able to communicate with them. We want to be able to give them a dealer perspective.
Are Volkswagen dealers profitable?
I think most of the dealers are profitable. They are down though from 2002. It was getting a little more difficult to make money as the year went on.
Are you satisfied with marketing and advertising?
The big debate in 2003 was are we doing enough brand advertising or do we need more tactical advertising to drive floor traffic. There's another challenge. What do we advertise? Our products are a little bit older, and it gets more challenging to be as exciting as we were before. I think in 2004 we'll be more product-driven and try to drive more floor traffic.
Can VW dealers sell the new Phaeton luxury sedan?
Volkswagen has come out with a nice aggressive lease program on the 8 cylinder at $699 a month. The dealers want a commitment to that lease price long term.
Are dealers excited about the coming Microbus?
Yes. I think dealers are excited, but it's down the road. We're anxiously awaiting our core products - Passat, Golf, and Jetta. And we're waiting to see where the pricing's going to be on the Microbus so we can have a feeling for what we're going to do in volumes. But with the EuroVan going out of production, we don't have a van now to sell to our customers.