Can Volkswagen turn it around in the US?

While the VW brand is leading in Europe and surging in China, it's actually going backward here.

By MSN Money Partner Jul 3, 2014 2:45PM
Credit: © Joe Raedle/Getty Images
Caption: The VW logo is seen on the hubcap of a 1976 Volkswagen camper bus By Doron Levin, Fortune Magazine

The U.S. automotive market is on a tear in 2014, with first-half sales up 4.3 percent in unit terms and the seasonally adjusted pace for June better than at any time since 2006. 


A notable exception has been the sales of Volkswagen (VLKAY), down 22 percent for the month and 13.4 percent for the year.


VW's anemic sales performance in the midst of a climbing U.S. market should be doubly troubling to the brain trust at headquarters in Wolfsburg, Germany. VW executives have asserted that a strong U.S. presence is key to its goal of attaining No. 1 status in the world by 2018.


While the VW brand is leading Europe and surging in China, it's actually going backward in the U.S., having been surpassed by newer entrants to the market, notably South Korea's Hyundai and Kia.  


The immediate reason is that VW's car models, while attractive to a small base of fans, are mostly at odds with the preferences of American consumers in size, price and utility.


"Volkswagen has been and continues to be in a new product drought. It simply doesn't have the vehicles or the breadth of product portfolio to capitalize," said Michelle Krebs, senior analyst for AutoTrader.com. VW, for example,"is missing out on the fastest growing segment in the market, the compact utility. It has the Tiguan but it can't compete with the likes of Ford Escape, Honda CRV and RAV 4."


While the price of the Tiguan is roughly comparable to a Toyota (TM) RAV4 or Honda (HMC) CRV, its operating costs are about 20 percent higher per mile, according to Edmunds.com, partly due to worse fuel economy.


The automaker's Chattanooga, Tenn., plant -- opened in April 2011 -- has been manufacturing a Passat family sedan that is much more competitive with the top performers in its class than a previous European-built Passat. Oddly, VW so far has failed to follow up Passat with a similar-sized crossover, the introduction of which dealers have been urging.


VW dealers in the U.S. are disappointed, having invested heavily in their stores for the past few years with the understanding that the German automaker intended to boost its offerings and modify them to be pleasing to a broader U.S. consumer audience.


Incredibly, the original Beetle was the last VW model to capture American mass-market interest. The Rabbit was actually a dog, plagued by defects and poor quality.  Earlier VW managements weren't committed to learning the American idiom, choosing rather to find consumers who favored the VW style that appealed to Europeans.


VW's luxury franchise, Audi, nearly closed its doors in the early 1990s before bouncing back to become on of the U.S.' coolest brands, a rival to BMW and Lexus.


"It will be a couple more years before VW's entire model line is fully refreshed on the new platform system," predicted Karl Brauer, an analyst for Kbb.com. "Don’t expect VW's sales trends in the U.S. to change any time soon."


Within weeks or maybe a few months the automaker is expected to announce a plan to build the Tiguan replacement, either in Chattanooga or in Puebla, Mexico.  Assuming that happens, the new model won't reach showrooms for at least two more years.


VW may reach its goal of global sales domination anyway. But the celebration in Wolfsburg will be more joyous if a U.S. turnaround is one of the reasons.


More from Fortune Magazine


97Comments
Jul 3, 2014 4:31PM
Jul 3, 2014 4:11PM
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I drive a 2008 Jetta, and the cost of service and repair rival that of my Audi and past
BMW.   Does not make for an economical car, especially with the odd repairs that cost a ton.

Lots to like about the size, power and fuel economy, but all that does not matter when the service and repair costs are BIG.

The American public thinks of VW as an economical car I believe.  That is not the case with their cars any more.

Jul 3, 2014 4:17PM
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I have a 2008 Jetta and the car has performed well.  The gas mileage is below expectations compared to similar size vehicles.  The reason I will probably never buy another VW is the repair costs!  I had a windshield washer fluid container start leaking (never heard of this before) and the dealer told me it would be approximately $500-600 to replace!  They were going to charge me $200 just to diagnose the actual problem (pump, container, hoses, etc.)



Jul 3, 2014 6:10PM
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VW's are great cars. I have owned 12 of them throughout the years and currently my familiy owns 3 all registered to me and purchased by me. The problem are not the cars, I own a Mk6 GLI, Mk4 GTI and Mk4 Golf. In the past I have owned everything from Baja beetles to Pasats and Scirocco and have loved every one of them.
The problem are the dealerships. They are greedy and provide poor service, turning people off from the brand. I have never found a VW dealer who would provide the service without dissapointing. Sad.
Jul 3, 2014 4:51PM
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The parts are just too expensive,  plain and simple.
Jul 3, 2014 7:03PM
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bring back the old style VW bug with the engine in the back, it was basic, easy to work on and fun to drive.
Jul 3, 2014 8:41PM
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My first 3 cars were the old Beetles and a Super Beetle. Loved them back then when they were simple. Wouldn't buy a VW now though. Had a repair shop owner tell me how you have to bring the newer VWs back to the dealership to have the brakes done because you can't retract the brake calipers without hooking it up to their computer and proprietary software to 'instruct' the calipers to retract. A $150 brake job now turns into a $700 one. Thanks but no thanks.
Jul 3, 2014 4:04PM
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I own a 2009 VW Rabbit, 2-door. Bought it brand-new in `09. Got a great deal on it. I've enjoyed driving this car more than any vehicle I've owned. But I must admit, VW has been slowly crawling backwards since then. They're marketing/building their vehicles for the European buyers, which is fine for Europe, but it isn't what the American buyers want. And now they're drastically limiting their vehicle options for the American market. I've already decided that, unless VW makes some positive changes for the AMERICAN market/buyer, I'll be buying a Focus ST next. That's a shame, because I've never driven a better built/more driver oriented car than my `09 Rabbit.
Jul 3, 2014 5:12PM
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A good idea would be for VW to introduce their 4 door diesel large pickup truck to the US market. It's high mileage, 30-33 mph,  high torque, load carrying abilities alone, besides it good looks would certainly woo the F 150, and Chev 1500 buyers.  These are well proven, and highly accepted throughout the world, and the closest they can get to the US is Mexico.  Come on, VW, get it in gear, and bring em to the good ole USA!
Jul 7, 2014 6:42AM
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I think there is a lot of truth in the old saying...... Never drive a german car out of warranty. 
Jul 3, 2014 4:42PM
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Stephan in Minocqua,WI
I had a 2003 and a 2006 Jetta TDI. Both great cars, great fuel economy, hardly any repairs, and I did about 160 K miles with both of them. Now I have a 2013 Passat TDI SEL, and this car is not what the Jetta's used to be, even though it looks great, has a good fuel economy also, but the trunk is way smaller than in the Jetta's, and you cannot load it up fully, because now they have the cheap hinge levers using up a third of the trunk space in an already very shallow trunk. The Jetta's had gas filled springs. I know this cost a few pennies more!! The worst thing are the tires it came with. Cheap Korean tires, making such a lot of noise that you can hardly listen to the radio on the highway. An other problem is the fact that they don't give you a fuse diagram anymore. If you blow a fuse, the manual suggests that you inspect each fuse to find out which one is blown. This is a difficult task at best! This is my last VW!
Jul 3, 2014 4:04PM
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  Every time VW  improves U.S. sales, the GREED mode kicks in. This time around, the 2014 model year only includes the first two years of maintenance rather than three. Audi reduced included maintenance to the first oil change and that's it. VW markets, then takes forever to release upgraded versions of existing models and takes even longer to release new ones. Not to mention how stingy they are when it comes to power increases, doling them out in 5HP increments just so they can milk every penny out of dated designs. When you add in the fact VW's, like ford and Chevrolet, come with a 3 year warranty ( the worst in the new car industry), I  decided  to give up on VW again. This time I won't be coming back.

Jul 7, 2014 7:54AM
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I like Volkswagens, and have owned 3.  (a 1968 Beetle, a 1981 Diesel Rabbit, and a 1999 Passat 1.8T)  Our current 1999 Passat has returned 32mpg, and just turned 280,000 miles.  It's still going strong and doesn't have any body rust even though it's been driven daily through 15 Ohio winters.

My biggest frustration with VW (and most manufacturers for that matter) is that they continue to increase the complexity of the vehicle to the point that the average owner cannot maintain or service the vehicles anymore.  I'm sure that this is intended to drive owners to the dealerships to increase service revenue.  But I believe this will backfire.  I have no desire to own a vehicle where I'm forced to pay exorbitant service prices.  I'm almost at the point where I will only buy older vehicles that I can maintain and repair myself.
Jul 3, 2014 3:39PM
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My husband and both have had VWs and would again if their cars weren't so boring!  The Passat is so dull and has an engine to match.  The CC showed promise early on, but now is heading in the wrong direction.  The Toureg is just way, way, way over priced for what you get.  And I apoligize to the Beetle fans, but I'm so over that car.  I know they are a throw back, but those "moon" rims are just ugly.  Anything exicting that everybody wants, like the Golf R, isn't available here.  My husband is pining away for that, but won't be here in time for the lease on his GLI is up, so no VW this time.

Jul 3, 2014 9:39PM
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My family owned and loved several VW's when I was a kid...

The last was a 80 Vanagon. AirCooled, it was remarkably slow, but quirky fun enough we loved it...
till something went wrong... then it was never cheap and always a miserable experience with waiting on parts an repairs.

Friends with new VW's all like driving their cars, but ALL OF THEM have expensive repair stories. Friends with Honda's, Toyota's just don't have those $1500-2000 repair tales for stuff like 'leaking exhaust manifolds', etc.
Jul 3, 2014 3:26PM
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I have owned 4 VW models in my lifetime and they all left a bad impression on me. I do have to admiit i have not heard of any recalls lately? Maybe i just missed the recalls if they occured but that speaks something for the company.
Jul 3, 2014 6:30PM
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The average American consumer seeks reliability, value-for-money, and low cost of ownership.  Meeting these consumer demands, and building cars suited to buyer preferences, popularized Japanese makes in the U.S.

VW made a good first step by building a Passat tailored to American tastes and preferences, but seems reluctant to move any further in courting the American consumer.  I don't see VW becoming a major player in the American market without modifying its product offerings to suit average American consumers.  While there is a market for European-style cars in the U.S., it is small when compared to the broad, overall market. 
Jul 3, 2014 6:54PM
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ONE ISSUE IS THAT THE US MARKET LIKES TOO MUCH COSMETIC CHANGES---PERSONALLY HAVING GOOD UTILITY IS MORE FOR ME----AND THE US HASN'T CAUGHT ON TO THE IDEA OF A HATCHBACK--REGARDLESS THAT THEY HAVE BEEN AROUND SINCE THE 1960'S.
Jul 3, 2014 11:33PM
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The consistency of what I'm reading in these comments is that the maintenance and repair on a VW is (for a lack of a better word)....expensive!  I always wondered about the maintenance costs on non-luxury German-engineered vehicles and the numbers are disturbing.  Seems like avoiding the dealership and finding a VW specialist with reasonable rates is among the best of options? 
Jul 3, 2014 9:57PM
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I have a 2009 Jetta Diesel and I love it. I get 42 mpg! They certainly do not have the recalls like Government Motors!
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