Volkswagen dealers demanded bigger incentives to help move 7-year-old nameplates that won't be replaced for another year.
"The mood of the dealers is not good," said Gene Langan, chairman of the Volkswagen National Dealer Council, after the make meeting. "Our impression is that Volkswagen is laying down this year. We're saying, 'Let's not give away '04.' "
In recent years, Volkswagen dealers have invested heavily in their stores. Many dealers built exclusive VW Marketplace stores, Langan said. Now it's time for VW to help dealers survive the temporary dearth of new products.
"The dealers want a commitment from Volkswagen to keep our volumes up until 2005," Langan said.
But at the testy make meeting, Volkswagen executives were noncommittal. "Our dealers are a little bit restless," said Gerd Klauss, CEO of Volkswagen of America.
In 2005, the Passat, Jetta, Golf and New Beetle will be revamped, Klauss said. Volkswagen will give dealers a preview of the redesigned 2005 lineup.
Dealers said they appreciate the preview, but they want subvented leases and low-interest loans. "Our challenge is we don't have cash to get people out of negative equity situations," Langan said.
To stimulate interest in its aging product lineup, Volkswagen will launch several variants, including a diesel Passat and the R32, which is the fastest Golf model ever. But it's unclear whether a few niche vehicles will boost sales significantly.
"January was a terrible month for VW dealers," Langan said. "I haven't talked to one dealer who said that business was good."
But Klauss appears reluctant to pile on the rebates. In the past, Volkswagen has maintained high residual values by avoiding generous incentives. "We won't deviate from our principles," Klauss said. "We won't give the farm away."
Volkswagen dealers also are worried about poor product quality. Company executives told them that an internal quality survey compiled by J.D. Power and Associates indicates that Volkswagen quality is improving.
But dealers were not impressed. "The dealers' response was, 'But you are coming from way down,' " Langan said.
Historically, Volkswagen has been below average in J.D. Power's Initial Quality Study. To identify quality glitches more quickly, Volkswagen dispatched a team of engineers to the United States last year.
But Klauss said dealers must understand that it will take time to fix quality. "Dealers don't see it happening fast enough," Klauss said. "Dealers are very restless. We have to work diligently and feverishly on quality issues."
Volkswagen will continue to plan relatively long product life cycles. But the automaker will plan more midcycle facelifts, said Ken Moriarty, executive director of corporate strategy at Volkswagen.
Volkswagen AG will stagger its vehicle launches to avoid a repeat of its current feast-or-famine philosophy.