Volkswagen of America hit rock bottom last year, but with new products and management, the brand should sell 300,000 vehicles in the United States this year, says Bob Grace, chairman of the Volkswagen National Dealer Advisory Council.
In September, VW brought in Adrian Hallmark from Bentley to run the brand, shuffling Len Hunt, who later quit, off to Bentley. Dealers found the change disruptive but say Hallmark appears to be open and willing to listen.
Work still needs to be done on quality and advertising, says Grace. Dealer profitability continues to be a problem, as does dealer satisfaction with the brand.
VW's attempts to move the brand upstream have gotten mixed reviews. But Grace says the replacement Jetta and Passat are hot products.
VW management has responded to requests for a convertible - VW will launch the Eos this year - and promises that a minivan, smaller SUV and a luxury vehicle above the Passat are on their way, says Grace.
Grace was interviewed in January by Staff Reporter Diana T. Kurylko.
VW has been through a lot of changes in 2005. Are you over the tough spots?
We hope so. We have seen a lot of change, especially with ad agencies and people. We lost Len Hunt and took on a new leader who just came on at the end of the year.
I think we are over it. Have we hit bottom? Yes, I think we have.
What is VW's hot product?
It has to be Jetta and Passat and the GTI is soon to be introduced. And later this year we will have the Eos convertible.
What's not hot?
The Touareg is a little soft. It's tied to the fuel issues.
Tell us about the reception to the new Jetta. Was the move upscale right?
I think the change was substantial. We were a little surprised. We have a Jetta now with more room and power. Our total unit sales in 2005 were 70,000, and with the old body style, sales are over 100,000 units. That is an increase over 2004.
It was a late first-quarter launch, and we never did have our full lineup of models - the diesel, the gas, the value edition. About 10 percent of our product is supposed to be the value edition; in March we didn't have that.
Early on we were tilted a little heavy on the mid-range and high-end price models. We did not have a full alignment of our full makeup of cars.
How is the new Passat being received?
Nationally, the Passat is picking up. Initially we only started with the four-cylinder 2.0-liter turbo. We are starting to see more 3.6-liter V-6 with 280 hp, our volume model, arrive.
How is the Touareg SUV doing? What can VW do to make it more competitive?
One thing we will add is a V-6 turbodiesel powerplant. We have a six cylinder, a V-8 and the V-10 diesel that has been having trouble coming to the U.S. because of emissions issues. They will add the six-cylinder diesel unit. I hope that it happens this year. They are forecasting a slight growth in Touareg sales.
Was the Touareg priced too high?
The good news is that Wolfgang Bernhard (head of the VW brand) will introduce a small SUV to our dealers in late 2007 or in 2008. It is exciting to see that we will be going a little lighter weight and have a smaller-size SUV. What is disappointing to dealers is that we have gaps that we don't compete in. Hopefully the smaller SUV will let us compete with the $25,000 to $28,000 SUVs. We just have an SUV that starts at $37,000 - it is a bit of a luxury vehicle.
Is it the size of the Touareg that's the problem?
I'm OK with its size. Some consumers ask about seven-seat capacity. Hopefully, the new van will be the answer to that.
Can you the sell Chrysler-made minivan that you'll be getting?
That is a segment that we don't compete in right now. We don't have a people hauler. I am glad to see we'll be competing with a van. Chrysler controls 40 percent of the van market; it sounds like a pretty good partner to me.
Has the facelift boosted New Beetle sales? Will we see a second generation?
I don't know about the second generation.
The dealer council is asking for more production.
How is the phaseout of the Phaeton luxury car going? Was this a wise move?
Phaeton was a great car. It has an extremely devoted owner group. They will limit the number of Phaetons for 2006. It's important to focus our resources more toward our strengths, and that's in the volume segment.
Diesel sales were hot last year. Will you get enough this year?
I hope. Our region requested 36 percent of our cars as diesels. We are an agricultural region, and they seem to think we can achieve those numbers.
How has the change in management affected VW dealers?
It's too early to tell. Adrian Hallmark (executive vice president of VW of America) has not had a chance to visit with the entire dealer group. The dealer board met with him three times now.
I think we have the right guy at the right time. His views are continually looking forward. He wants communication and inclusion and he says he's transparent. So far he has lived up to those on all fronts.
Did VW stray a bit in this move to go upscale?
Yes, they did.
Was that a mistake?
I think we need to focus on our volume business. It is more the Jetta, Passat and the (New) Beetle.
What new products are on the way?
The new GTI is being launched right now. Dealers are already seeing them. We have a Passat wagon on the heels of the GTI. We did not have a wagon last year. The facelifted Golf comes at the end of this year. We will see the Eos convertible in September.
What does this mean for you?
There are segments we can compete in. We see people getting out of SUVs and looking for alternative vehicles. The Golf has been a low-volume car. If the GTI adds excitement and Golf does as well, we can see increased volume in those areas.
We did ask Dr. Bernhard for an entry level car.
Do you need a small car? And when will you get one?
He did not tell us when. He knows we need one. At the L.A. auto show, everyone was going smaller. Bernhard said perhaps we will an entry level-priced car, but perhaps not a car small in size. He did not say we will get a Polo.
What challenges do VW dealers face in the coming months?
We all want to be profitable and to sell more cars in today's market, and that is not an easy task.
What is the top priority of the dealer council in 2006?
Dealer profitability. We have to have proper support from VW and dealers, and we need to work to improve customer satisfaction, sales and service. We have a job as well as they do. The quality and the support have to be correct.
Does VW listen to its dealer council?
Last year for the first time, we met on a monthly basis. Prior to that we met three or four times a year. Most dealer boards meet that often. We did not want to be accused of lack of communication, and it was there. We are in this together - VW and dealers - and we can turn this thing around.
How many years will a turnaround take?
I hope we have turned the corner.
How long will it take to get sales to 300,000?
That is a number they are forecasting this year.
What has been your biggest disappointment as dealer council chairman?
My wish would have been that the Jetta and the Passat had taken off faster.
Was there a lack of advertising? What happened to the launches?
With the changeover of advertising agencies, some of it could have been related to advertising. I have seen work by the new agency, and it is so exciting. It is great stuff.
What are the dealer council's top concerns?
No. 1: Improve dealer profitability. We have to sell more cars, parts and service.
No. 2: We need to make sure the brand has a strong marketing presence so people see and understand our adverting. We didn't have that last year.
No. 3: We must have high quality and exciting products in the market, and at the right price. We don't want to price ourselves out of the market either.
How is the factory responding to those concerns?
We are constantly discussing ways for them to continue to offer consumers highly desirable products. We continue to push for an entry level-priced car and more diesel products into our market. We want diesels for all 50 states.
How satisfied are dealers with VW?
We just put Hallmark in as head of Volkswagen of America. We are convinced he'll make a positive difference for the brand. New products mean higher dealer profitability. We want to see what Adrian can and will do. Dealer attitude has been low.
Do your dealers have the right product mix and overall marketing strategy to be successful?
We just changed agencies to Crispin Porter + Bogusky. We have great expectations. I have seen some of their work already. It is exciting.
Have you seen a decline in customers wanting fuel-chugging vehicles?
Yes. The rise in fuel prices has affected SUV sales. We would love to have a diesel product in our whole lineup - in the Golf, Beetle, Passat and the Touareg. We only have a diesel now in the Jetta and will get one in the New Beetle for 2006. We want it across the full line.
How many of your customers ask about hybrid vehicles?
It's the hot topic right now. I know VW, Audi and Porsche are working together on one. We do have customers that ask.