CEO: VW of America profit best in decades

Editor's note: An earlier version of this report incorrectly characterized the time period in which dealers experienced a 5 percent return on sales. That return is happening currently.

MUNICH — Volkswagen of America had its most profitable year in decades in 2020 and turned its first profit since 2012 in the U.S., thanks to a new lineup of more profitable crossovers and the knock-on effects of the pandemic, CEO Scott Keogh said.

The German automaker doesn't break out its performance by regions, but Keogh told journalists gathered here for the Munich auto show that the brand had a $700 million turnaround in 2020 from the previous year because of sales of the Atlas, Atlas Cross Sport and Tiguan crossovers.

"A few years ago, 16 percent of our mix came from SUVs, and now if you look at, year to date, 71 percent of our mix is coming from SUVs," Keogh said. "That's transformative because if you look at the profits that we make on the SUVs versus sedans, it's night and day."

Keogh also said VW dealers in the U.S. — who historically have had some of the thinnest profit margins in the industry — are now seeing an average 5 percent return on sales in 2020, which he said was revolutionary "because 60 percent of them were losing money two years ago."

In other comments here, Volkswagen Group CEO Herbert Diess and Keogh said the automaker would crack an industry barrier in the coming years by offering used-vehicle leases on its ID family of electric vehicles, including those sold in North America. The secondary leases are a strategic move to keep control over the vehicles' valuable batteries in order to harvest them for other uses after the vehicles' useful life.

"In Europe, we are trying to get a second lease, and even a third lease, and keep the car in our hands," Diess told a group of American automotive journalists, adding later that the same plan would be rolled out in North America. "Battery life, we think today is about 1,000 charging cycles and [about 215,000 miles], something like that. So the battery would probably live longer than the car, and we want to get hold of the battery. We don't want to give the battery away."

Diess said the battery's value survives even as the value of the vehicle depreciates, and he said that value could help keep residual values high, making secondary leases more affordable.

"There already is an indication that residuals for electric cars might be higher than for [internal combustion] cars because, even if the car is totally worthless, still there is a battery" that may have 70 or 80 percent of its original energy storage capacity, Diess said.

Since the model began arriving in the U.S. in March, about 80 percent of the 6,230 VW ID4s the brand has sold in the U.S. have been leased, Keogh said. "We will have the second lease product; we've preplanned it already."

Keogh said that the preset residual values would keep EVs in customers' hands for up to eight years, at which time they would be returned, their batteries stripped out and the vehicle recycled back into raw materials.

"The task for our organization is to really try to keep hold of the batteries, and probably get into a second or third lease cycle for the car and then reuse the batteries," Diess explained. "In the regions, it has to be worked out, it has to be agreed with the dealers, but we would like to keep every one of the batteries forever."

In other comments last week, VW brand CEO Ralf Brandstaetter said the U.S. is expected to eventually get a third EV model, a fastback-inspired sedan called the ID Aero. It will be built on the automaker's modular electric platform. He also said dealers could expect an Atlas-size three-row EV crossover.