Unlikely hitch for VW dealers

WASHINGTON -- Two months into the emissions cheating scandal that has sullied the Volkswagen brand, dealers are running into an unexpected challenge: They don't have enough vehicles to sell.

VW-brand supplies are at their lowest levels of the year, and dealers from Washington state to South Carolina say they have only a few -- and sometimes none -- of the most in-demand nameplates in stock.

Instead of seeing customers flee the brand in the wake of its emissions debacle, the VW brand posted flat year-over-year U.S. sales in October as demand for gasoline models surged amid heavy incentives, including a $2,000 loyalty discount for returning VW owners.

The deals helped VW offset the loss of diesel sales, which are frozen by the emissions-related stop-sale order. They also helped clean out much of VW's salable inventory.

Dealers say the factory incentives, bonus programs and other financial aid tools have kept them engaged, and they applauded the help from Volkswagen of America. In a sense, the diesel crisis has resulted in dealers receiving what they've sought for years: competitive pricing to go head-to-head with big players such as Honda, Ford and Nissan.

Still, the supply crunch comes just as VW begins its "Sign Then Drive" sales promotion, which runs through December, and it could undermine what historically are two of the brand's strongest months of the year.

"We had our best-ever October in terms of new VW sales, and just doing that with gas models and no TDIs in the mix left our shelves pretty thin going into November," said Marc White, vice president of Steve White VW-Audi in Greenville, S.C. "It's our No. 1 challenge between now and the end of the year: how to keep sales going with very low stock."

VW brand had 52,596 new vehicles on dealer lots at the end of October, a 48-day supply on the ground, according to data from TrueCar. That's the lowest days supply of the previous 12 months and 20 fewer days of inventory than the brand had to begin its year-end sales event in 2014.

And that count includes thousands of new diesel-powered VWs that can't be sold, according to TrueCar.

Altogether, the VW brand had some 108,300 vehicles in U.S. inventory as of Nov. 1, according to the Automotive News Data Center; that figure includes vehicles in transit, at factories or held in ports, where VW is keeping imported diesel vehicles that cannot be sold without EPA certification.

White said that of the 97 new cars on his lot midway through last week, 72 were for sale, while the other 25 were grounded because of the diesel order or safety recall-related stop-sales. That leaves him with about a 35-day supply, he said.

"The bigger issue is that the volume cars are in very short supply," White said.

He says the "screaming" October deals on the 2015 Passat helped him sell 40 vehicles last month, leaving him with around three to start this month while he awaited a shipment of 10 2016 Passats to arrive midmonth.

The midsize sedan, VW's second-best seller, is in short supply nationwide after dealers sold through their final stocks of the 2015 model ahead of the re-engineered 2016 Passat's rollout, which has begun in limited numbers.

Fred Emich, general manager of Emich Volkswagen in Denver, said he had no Passats to begin sales in October and had to rely on dealer trades to sell the few that he did. He received his first shipment of 2016 Passats last Wednesday.

It's not just the high-volume Passats and Golfs that are in short supply.

A key shortage is the Tiguan compact crossover, a generally low-volume product for VW nationally that last month posted its best month on record, helped by hefty incentives and a lower sticker price for the 2016 model year.

Emich sold 80 Tiguans last month, and last week, he had just five in stock compared with the 40 or 50 he normally stocks. Emich says his Rocky Mountain store sells more Tiguans than any other VW store in the country.

The trouble is replacements aren't arriving fast enough to fully replenish his stocks.

At its national dealer meeting in Orlando last month, VW executives pledged to make up for the loss of diesels with additional production of the gasoline-powered Jetta and Golf, as well as the GTI hot hatchback and Tiguan. But dealers say their inventory allocations are set through at least mid-December, and they have yet to see the planned production increases appear in their allocations.

"It's going to be an extremely tight November for us, and December will be a little bit better," Emich said.

Dealers say the inventory crunch is partly tied to a VW effort to reduce vehicle stockpiles that has been months in the making.

Matt Welch, general manager of Auburn Volkswagen near Seattle, said "VW has been doing a masterful job where we're selling more cars with half the cars in inventory.

Welch said he stocked as many as 300 new cars per month in recent years to support the 70 new cars he sells in an average month. This year, Welch has stocked 120 to 140 new cars to support the same monthly sales rate.

After the October push, Welch began November with 68 cars, plus another 24 diesels on stop-sale.

"I've got 46 cars coming the first two weeks of the month but that's just going to replace what we sell," Welch said. We're hand-to-mouth, and that's great."