VW calms dealers, charts 'next big step'

NEW ORLEANS -- Michael Horn is new enough to his U.S. assignment that he's still looking for a permanent home in suburban Washington for his family.

But Volkswagen Group of America's new CEO hasn't had a moment to waste getting his corporate house in order.

Horn, who headed VW's global aftersales business in Germany before his appointment in December, met with VW dealers here Jan. 26 hoping to quell a near-revolt over stair-step bonuses, shrinking profits and complex commands from the factory. Judging by dealers' reactions to his promises, he seems to have succeeded.

"A lot of the issues that we struggled with for the last couple years have been addressed," says Jimmy Ellis, a longtime VW dealer from Atlanta who has called for many policy changes as chairman of the brand's U.S. dealer council. "And I'm confident that as we work over the next few months, those will now be put to bed."

The changes will cost VW some money, but they could buy Horn's team the time it needs to execute a major shift in the brand's U.S. marketing tactics and prepare for an expansion of the product lineup starting in 2016.

"There are basically two key priorities," Horn told Automotive News. "One is the dealer relations. And the other is to get the product ramp-up to get to the next step. We've done step one. We've achieved this 400,000 [unit] plateau and we'll defend this. But we need the next big step."

VW executives have spent the past half decade marching toward the "Mach 18" goals set by Volkswagen AG CEO Martin Winterkorn, which include selling 800,000 VW brand vehicles in the United States annually by 2018. The brand took its first big step in the United States from 2010 to 2012, when it introduced the Jetta compact sedan, Passat mid-sized sedan and Beetle coupe in rapid succession. U.S. sales doubled in three years.

Last year, a lull in launches caused sales to fall 7 percent to 407,704 units. Dealers and executives hope Horn's background in Wolfsburg will enable him to secure new products that will allow VW to regain its momentum and compete with America's largest brands.

"They clearly want us from the U.S. to have a consistent loud voice in Germany, to get our market demands done," Horn said. "That's my job description."

Horn says he recognizes that VW cannot keep up with those top brands when it comes to advertising spending. "We are a market challenger," he says, "and we don't have gazillions of dollars."

So he's asking his team to be more tactical. This year, VW will pivot to explaining what sets its vehicles apart, with messages meant to draw people to showrooms.

"For me it's quite obvious we have product advantages," Horn said. "If the customers don't know this, we have to make it more clear. We have to explain ourselves."

Volkswagen will spend more to spread this message. In one change announced to dealers last month, the factory will match some of the money that regional dealer groups combine for so-called Tier 2 advertising in local markets.

The brand's advertising agency of record, Deutsch, has started making some of these Tier 2 commercials. Three were shown to dealers here.

Like his predecessor, Jonathan Browning, Horn plans to build the VW lineup around four North American-made volume sellers: the Jetta, the Passat, a reworked compact crossover and a new mid-sized SUV.

A freshened 2015 Jetta will be unveiled in April at the New York auto show, a VW source told Automotive News. The Passat also will get a facelift next year. A Passat variant based on the fuel-efficient Passat BlueMotion concept shown in Detroit also is under consideration.

But Horn's "big step" will start in earnest in 2016, when the mid-sized SUV is slated to go on sale.

The compact crossover will follow soon after. VW hasn't shown that vehicle in public, but Horn describes it as an evolution of the current Tiguan and says it's far along in development and its design is "quite finished."

A fast ramp-up of that product could hold the key to realizing Winterkorn's lofty goals. VW sold 30,002 Tiguans in 2013, while Subaru sold four times as many Foresters, Nissan five times as many Rogues, and Toyota seven times as many RAV4s. The segment leaders, the Ford Escape and Honda CR-V, sold about 10 times as many units as the Tiguan.

Horn's mission, simply put, is to narrow that gap.