VW dealers begin to see upside of U.S. sales target

Shaun Del Grande was an early critic of the way Volkswagen doggedly pursued its goal to sell 800,000 vehicles a year in the U.S. by 2018.

"I was a complainer," admits Del Grande, president of Del Grande Dealer Group in San Jose, Calif., and one of many VW dealers frustrated with what they saw as undue pressure from the factory to hit the ambitious target.

In recent weeks, Volkswagen has said it's sticking by its 800,000-vehicle goal. But dealers such as Del Grande now sound much more positive about it, amid increasing signs that they won't have to shoulder the burden themselves.

For example, VW has stopped the clock on its sales target, telling a gathering at the National Automobile Dealers Association convention last month that boosting dealership profitability would be more important than the 2018 date, or any specific date.

After missing the current crossover boom, VW pledged last month to bring two new North America-built crossovers to dealerships in 2017 and is mulling at least a third crossover to add to the portfolio afterward. And it announced plans to add 100 dealerships in the U.S. by 2019, but only in markets without any VW dealerships today, so as not to undercut existing dealers. Most would open after the new crossovers arrive.

The announcements last month followed several other changes that have cheered up U.S. dealers since Michael Horn took over as head of Volkswagen Group of America just more than a year ago. In the last year, VW said it would shorten its product life cycles to more closely match U.S. purchase patterns. It created new local marketing associations to give dealers a bigger voice in ad campaigns and promotions. And it's hiring 200 engineers to staff an r&d center in Chattanooga to bolster its U.S.-product planning chops.

"They're fixing the structural issues," Del Grande said. "It's not there yet, but I think this brand is going to get better every year."

That sort of enthusiasm was hard to find a year or two ago. Before Horn's arrival, dealers say, VW built its U.S. strategy around satisfying the 800,000 target, pushing dealers to build big-budget showrooms to prepare for future volumes and leaning on stair-step incentive programs to drive up numbers. That grated on dealers, who widely say the program damaged profits and pitted VW retailers against one another.

Those frustrations were captured in VW's ranking in the winter 2014 NADA Dealer Attitude Survey: dead last.

Yet dealers now express a keener sense that VW executives are responsive to their concerns.

"They understand that it's on them that we're where we are right now," said Chris Meier, a VW dealer and partner of Herzog-Meier Auto Center in Beaverton, Ore. "It has everything to do with their assessment of the market."

Dealers describe Horn as a listener who takes their comments seriously. He'll pull out a notepad in the middle of a dinner to jot down notes about their concerns, one dealer said. And they value the fact that he's a German schooled in VW's inner workings, giving him the clout to win what the U.S. market needs to thrive.

As evidence, they cite Horn's success in lobbying VW to shorten the life cycles of its U.S.-market sedans to five years from seven, which Meier called "the most important product announcement that Volks-wagen has made in the last two decades."

The seven-year cycles -- a vestige of VW's Eurocentric approach to product planning -- put the company at a distinct disadvantage with Japanese brands: Customers returning to the showroom after a three-year lease or five-year loan looking for something new often found a car that was barely different from the one they turned in. Competing brands, meanwhile, had been through at least one redesign.

The change "is spot-on to the American market," said Horn, adding: "American customers want to buy a new car and have a new design to show their neighbors that they've got something new."

Horn said the change also will help improve VW residual values by lessening the need for costly incentives on aging models.

The shorter sedan life cycles will kick in starting with the arrival of the next-generation Passat in 2018, Horn told reporters last month at the Detroit auto show.

For dealers who have been through two years of declining sales, that's still a long wait. Many VW dealers struggle to be profitable. And dealers expect the brand's U.S. sales growth to be flat or limited for the next two years before the two crossovers arrive in 2017.

A few additional products are in store in the meantime. Meier says he was shown an early preview of the Passat freshening that arrives this year that showed more substantial design changes than the Jetta got for its 2015 model freshening last fall. The Golf SportWagen comes out this year, and an all-wheel-drive cross-over-style version, dubbed the Alltrack, will land in 2016.

"Now we'll have a Subaru fighter," Meier said.

Steve McKenzie, general manager of Fowler Volkswagen of Norman in Oklahoma, said an October meeting in which VW outlined many of the changes and plans helped boost his confidence as he prepares to move into a new facility that's twice the size of his current store next fall.

"Maybe [the product plan] is a little lean," he said. "But if we can make the stores work for the next two years, the following four years are going to be great."