Volkswagen Group of America has cut its 2013 U.S. sales target for VW division, a sign that executives don't expect the brand to break out of its current slump by year end.
The move is also a concession to dealerships that were struggling to earn bonuses under an incentive program built around the sales targets. The incentive program, critical to many dealerships' profitability, was restructured this month.
The German automaker entered the year with a goal of selling about 11 percent more Volkswagens than the 438,133 units sold in the United States in 2012, bringing the brand closer to its goal of selling 800,000 units a year by 2018. But through June, its U.S. sales were down 1 percent, causing the division to shed market share after three straight years as one of the nation's fastest-growing brands.
During a meeting with U.S. dealers this month, top Volkswagen Group of America executives said the VW brand's sales goal for 2013 is now 440,000 units, multiple sources told Automotive News.
Jimmy Ellis, a VW dealer in Atlanta and chairman of the brand's national dealer council, said VW had always expected a slowdown this year, with the Japanese automakers recovering from the tsunami-induced production crunch of 2011. But the competition in the compact and mid-sized sedan segments was fiercer than expected, he said.
"We just didn't see it coming to the extent that it has happened," Ellis said. "Volkswagen didn't wake up to all of that until we got to spring of this year and looked around and said: 'We're getting kicked around a little bit here.'"
Dealers say the revised sales target will ease pressure on them to cut prices or risk losing VW's tiered bonuses, also called stair-step incentives. Some dealers had resorted to selling tactics that hurt relationships with customers and other dealers.
"We get down to the end of the month, and it's whatever you can do to hit that number," said Beau Boeckmann, vice president of Galpin Motors in North Hills, Calif., which added a VW franchise 11 months ago. "This helps with that," he added, referring to the policy changes that VW made this month.
VW officials in the United States would not confirm the new sales target. Frank Trivieri, Volkswagen of America's executive vice president of sales, said only that executives are "still looking for growth from last year."
Mark McNabb, COO of Volkswagen of America, acknowledged that the company revised its system of stair-step bonuses for dealers at the start of July, undoing some changes that were put in place on Jan. 1.
Those changes had drawn swift blowback from VW dealers. A record 75 percent responded to the National Automobile Dealers Association's survey of dealer satisfaction this winter, ranking VW last among brands for its dealer policies.
McNabb said VW revised the program again to have clearer goals, simpler bonus calculations and more predictable payments from month to month.
"We want to continue to be close to the dealer body," he said. "We value very much their input, and hopefully they walked out of the meeting with just that impression."
The Variable Bonus Program still pays dealers up to 3 percent of sticker -- or $750 for a $25,000 car -- if they hit targets for new-car sales and customer satisfaction.
However, dealers now get a "delivery experience" bonus worth 1 percent of sticker for all cars sold. It does not carry any new requirements, so dealers will automatically get paid $250 for selling that $25,000 car, regardless of whether the store hits its overall sales target or has good customer satisfaction scores.
Mike Sullivan, who owns nine Los Angeles-area dealerships, including Volkswagen of Santa Monica, said he remains convinced that VW will reach its goal of 800,000 unit sales once more new products arrive. But he said that even with the softened sales target, this year is going to be a challenge.
"It's going to be a stretch. We're going to have to grind," he said. "But the number they're shooting for this year is absolutely attainable."