VW faces big test of dealer faith

The next chapter in Volkswagen's American story may have a lot to do with what transpires this weekend in a Las Vegas hotel ballroom.

It's where senior VW executives will face a gathering of dealers who have been stewing for years over unfulfilled ambitions, red ink and broken promises. They will try to make the case that they can rebuild the battered brand and justify the $1 billion dealers have invested in it over the past 10 years.

It may be their last shot.

"At the end of the day, we have to come together as a team," Alan Brown, chairman of the brand's U.S. dealer council, told Automotive News ahead of a critical make meeting Saturday, April 2, at the National Automobile Dealers Association convention.

If they can't, Brown says, he won't be able to control how dealers react.

For now, there's a tense calm across the dealer network after Brown and two other council leaders returned from meetings with senior executives at Volkswagen headquarters in Wolfsburg, Germany. The delegation persuaded VW global brand chairman Herbert Diess to come to Las Vegas and address dealers personally along with North America boss Hinrich Woebcken and outlined the key issues dealers want addressed. Among them: sales targets, product plans, allocations and possible reparations for the damage wreaked by the diesel scandal.

Brown says he's keeping an open mind but that VW executives will have to confront an angry and suspicious dealer body. Dealers were incensed by the unexpected departure of VW of America CEO Michael Horn, whom they had regarded as their champion before and after the diesel crisis erupted in September. Now, talk of class actions against the factory has gained steam.

In Horn, "we finally felt like we had a guy fighting for us and not bullshitting us," said Brown. "We felt like we had some good products coming. That's why we didn't sue."

Brown said that in Wolfsburg, he warned VW brass that with Horn gone, they would have to work especially hard to earn the dealers' trust. "'Guys, don't take this the wrong way,'" he recalls telling them. "'I'm not saying it to you personally. But the word is no good at [Volkswagen] AG.' If we're going to run a business, we've got to start doing what we say we're going to do."

Matt Welch, general manager of Auburn Volkswagen near Seattle, says he was planning to skip the NADA convention for the first time in 10 years, but he changed those plans after the dealer council asked every VW dealer to attend the make meeting.

"I hope to hear that the products that were already coming will be on time and that their strategy is what we read in the letter, that they want to get to 500,000 [sales a year] as soon as possible," Welch said, referring to Brown's report to dealers after his Germany visit. "I also want to hear how we are going to get more cars on the ground right now, because I'm not getting enough cars today to support my business."

Dealers who go to Las Vegas hoping to finally hear about a resolution to the diesel crisis are bound to be disappointed. VW had faced a court deadline Thursday, March 24, to explain its plan to fix the polluting vehicles, but a federal judge in San Francisco last week extended the deadline to April 21.

According to a transcript of the hearing, Judge Charles Breyer said the fix proposal must be "specific and detailed as to proposed timing, what cars are involved in each proposal, payments to consumers and the like," a standard VW has struggled to meet.

In the meantime, April 2 looms as the more pressing deadline.

"The agenda of the meeting in Germany was to really settle in and prepare this new leadership for NADA," Brown said. "They want to make their mark, and they see it as a great opportunity to make their mark because all of the leadership prior to this has been ineffective in the U.S. market."

Brown says VW's dealers need at least 450,000 to 500,000 U.S. sales annually to have a chance at a healthy network, well more than the 330,000 he says VW executives proposed as a target earlier this year.

A 330,000-vehicle market "does nothing but lose Volkswagen a ton of money and puts the dealer at about half of NADA [guidelines] on return on sales," Brown said. "It's a train wreck for both of us."

Volkswagen sold 349,440 vehicles last year -- down 4.8 percent from 2014 -- but has been barred since September from selling diesel cars, which accounted for just more than 20 percent of the brand's volume.

While no firm target has emerged, a Volks-wagen AG spokesman said last week that a larger portfolio of crossovers will aid VW's U.S. growth, anchored by a new midsize crossover built in Chattanooga and a larger, redesigned Tiguan compact crossover built in Mexico.

"Our U.S. dealers are a significant pillar of our business in the USA," the spokesman said following the dealer meetings with VW executives. "It's clear that we want to gain growth in the USA again."

Brown says some short-term "wins" are needed to jump-start that growth. For example, he says, dealers need more Tiguans, which are finally selling strongly with generous incentive support, and more inexpensive Beetles that sell quickly.

Another opportunity is the Passat, whose sales have tanked 37 percent through February despite significant updates to the 2016 model that arrived in the fourth quarter.

More than anything else, Brown says, the NADA meeting represents an opportunity for VW executives and dealers to restore faith in each other.

Said Brown: "We've got more than $1 billion invested in America. Failure is not an option. It's not an option for [VW] AG, and it's not an option for the dealer network."