Volkswagen of America, scrambling to build traffic after a grim sales month, is subsidizing leases on its two newest vehicles: the Passat and Jetta sedans.
The move came after a 21.4 percent year-to-year drop in VW brand sales in October -- a month that CFO Hans Dieter Poetsch called "disastrous." The lease program is a sharp departure from VW's profits-first, sales-second philosophy.
The 39-month lease deals require no money down. Monthly payments are $249 on the Jetta and $299 for the Passat. The offers run through Jan. 3.
Both cars were redesigned this year, making them surprising choices for incentives. Both have more generous lease offers than the sagging Touareg SUV; its sales are off 36.9 percent so far this year.
Better days coming?
Through October, VW brand sales are down 17.1 percent from last year. But Adrian Hallmark, the new U.S. sales chief, told dealers this month that better days are ahead.
Dealers say Hallmark met with the 10-member dealer council Nov. 1 and 2 in Las Vegas and predicted a strong November and December.
Hallmark, who became executive vice president of Volkswagen of America Inc. on Oct. 1, told dealers they'll be back on track with sales of 250,000 to 300,000 units in 2006. The VW brand hasn't sold 300,000 units annually since 2003.
Dealers have been disgruntled with VW for several years. They put VW at the bottom in this year's National Automobile Dealers Association dealer satisfaction survey. But news of the lease incentives and positive initial impressions of Hallmark and his strategies have sparked some hope.
"From here forward, we will see aggressive moves from Adrian," says council member Jack Bertolet, owner of J. Bertolet Volkswagen in Orwigsburg, Pa. "He prioritizes things we want to get done -- like making dealers profitable.
"Many dealers are struggling," he says. "We are in a model changeover, and we've suffered from the lack of model mix."
Kevin Eckhart, owner of Santa Barbara Volkswagen in Santa Barbara, Calif., says the last time VW offered a program like the Passatt-Jetta lease deals was in 2003. And that offer was available only in the western United States.
Sales of the VW brand were up year-to-year in August and September in what was heralded as the beginning of a turnaround. Hopes were dashed by the dismal October performance.
Poetsch told The Financial Times that full-year 2005 losses in the United States "could even turn out worse than 2004," when the company lost $1.07 billion.
Poetsch told the newspaper that 2006 would be "significantly" better, but nowhere close to breakeven.
VW has been restrained with incentives in 2005. In an interview this year with Automotive News, former U.S. Volkswagen chief Len Hunt, who recently became COO of Kia Motors America Inc., laid out the strategy: "We are desperately planning the business on profitability. Everyone wants sales volume. I am not focusing so much on the volume now but profitability."
But the new lease offers suggest that the wind is changing.
You may e-mail Diana T. Kurylko at [email protected]