First In: Can James Bond Help Volkswagen?

In my daily search the other day looking for Volkswagen-related news items I came across this interesting tidbit from Reuters News in Europe:

“FRANKFURT (Reuters) – Volkswagen has set up a task force assigned with finding out what U.S. car buyers want and translate that into new models that sell better in the United States, a Der Spiegel magazine has reported.

Europe’s biggest carmaker devised the team, dubbed “Moonraker” after the James Bond movie, as an ageing line-up of models and quality problems have weighed on its share of the world’s largest car market, the German weekly reported on Friday.

The team, led by a former manager of German luxury carmaker BMW, Stefan Liske, includes development, design and marketing experts and will look at VW’s namesake Volkswagen as well as its upmarket Audi brand models, the magazine said.

VW’s brands are currently lacking car types which are especially popular in the United States: Audi does not have an upmarket sports utility vehicle in its roster, while Volkswagen does not offer pick-up trucks.

Volkswagen was not immediately available for comment.”

Moonraker – A 1979 James Bond movie with memorable character names like “Dr. Holly Goodhead” (who thinks of this stuff anyway?), and now a major project by Volkswagen that, according to the story above, is to develop more competitive vehicles for the U.S. market. Assuming Volkswagen is looking for new car “types” as the article suggests, giving the existing lineup of vehicles offered a hard look and eyeing what the competition is doing got me thinking a bit about some of the “issues” a Moonraker project group must be thinking about. So let’s drag the dead horses back out of the closet, dust them off and prepare to beat them again and look at a few of the things that may help Volkswagen be more successful in the U.S. market:

1. Quality – This could be a topic all in itself, but suffice to say, VW needs (and they know this) to improve the overall quality of their products if they want to have *any* long-term success here. Increasing the bumper-to-bumper warranty would be a nice gesture to instill more confidence in buyers. We know Volkswagen is working hard to fix this problem, so for the sake of argument (and length of story) let’s set this one aside as it is already in the pipeline.

2. Dealership/Customer Experience – Likewise, another topic that could be quite lengthy, but again, one that has seen significant progress strides already and should continue to get better and better with the changes going on both corporately and at the dealer level. So again, let’s give VW benefit of the doubt that they are already working on improving things. Let’s move on to product…

3. Product – This is likely going to be a long winded one, so strap in…

Currently in the U.S. market the top selling vehicles are (in order); pickup trucks, mid-size SUVs and mid-size sedans. If you want to have sales success in the U.S. and move more than 200,000 units in a given segment (something VW hasn’t been able to do in ages), you need to have a vehicle competing in one of those segments. So where does that leave Volkswagen?

Pickup trucks – Should a German company with a long, long history of selling cars get into the U.S. pickup truck market? A long time ago Volkswagen actually built a small pickup called the Caddy based on a Golf/Rabbit platform. It wasn’t particularly successful, but found a small niche here, mostly due to its small size. Today you need to make a decision on how much of the pickup truck market you want to try and tackle and then how to do it. Toyota and Nissan have both jumped in full-bore with a variety of pickup trucks available in small, medium and large sizes. The “large” size being direct competitors with the full-size (and number one selling) Ford and GM full-size trucks. Honda, on the other hand, is being a bit ambiguous with their offering, refusing to call it a pickup truck in their press materials and only vaguely calling it a “truck” and something different for that segment. All marketing hyperbole aside, the vehicle does look like a cross between an Explorer Sportrac and a Chevy Avalanche, with car platform-based underpinnings and a few neat features like a trunk in the rear pickup bed. Either way, these are all attempts by underdogs to chip away at the American pickup truck strong hold. This is also a segment that has a LOT of competition and the need to differentiate yourself from everyting else on the market (particularly if you are the underdog) is very important. With all that said, I’m not sure Volkswagen would be best suited jumping into that market quite yet (if ever).

Mid-size sport utility vehicle (SUV) – German car magazines are reporting that Volkswagen is working on two more SUV-like projects – a Golf-based MPV/SUV and a mid-size 3rd row seating SUV bigger than a Touareg, but with less luxury appointments, less mechanical complexity and at a lower cost point. The primary motivator for such a vehicle is the U.S. market, as longer wheelbase SUVs don’t stand a chance in Europe, where SUVs don’t sell well to start with. This is a vehicle that needs to compete with the Ford Explorer, Nissan Pathfinder, Toyota 4runner and other SUVs that have a $25,000 to $38,000 price tag. Presuming the press reports are right and VW is working on such a product, it would be a clean sheet of paper to work from and one that VW shouldn’t be able to screw up.

So that leaves mid-size sedans – Honda Accord and Toyota Camry – two vehicles that represent the mid-size car market today. Honda and Toyota move more than 300,000 Accords and Camrys individually each year. The cars have steadily gotten larger, more refined, and more luxurious. Likewise though, the demographic has gotten progressively older, with the average age of an Accord owner being nearly 50 and the Camry owner at 51 years old. It would seem that Volkswagen has this segment figured out with the Passat, but that isn’t exactly the case…

Volkswagen has a positioning problem in the U.S. market. In Europe things are typically much clearer. With direct competition from Peugeot, Renault, Alfa Romeo, Fiat and others, the market position of a good portion of VW’s product makes sense. Over here though, things are a little different. The Jetta and Passat are both “tweener” models fitting largely in-between the segments each model traditionally competes in. Take the Jetta, for example – for the last ten years the Jetta seems to compete size-wise with the Civic, Corolla and Mazda3 compacts. Price-wise though, the Jetta seems to be more of a Saab 9-2, Volvo S40, Acura TSX competitor, yet it undercuts all of those on value as well. In other words, it falls somewhere in between. It is the same scenario with the Passat. The Accord and Camry range in price from $16,000 on the low end to $30,000 on the high end. The Passat price ranges from $22,000 to $38,000, making it a bit more expensive but still below the average price point (W8 Passat aside) of the Audi A4, BMW 3 Series, Inifinti G35 and other near-luxury/luxury brands.

So what do you do if you were Volkswagen? Take the next Jetta and move it up to the Accord-class of mid-size vehicles much the same way Nissan did with the Altima? Or do you bring the Passat back down to the price point of the Accord/Camry (which means cheapening the car)? The later scenario could be suicide for the Passat as it would likely turn off the existing younger demographic that buys the Passat, get panned in the press as being “less of a car” than the outgoing model and overall appear that VW “sold-out” just to try and grab a little more marketshare.

The other major issue is that Volkswagen is a European car company and the platforms that VWoA has to work off of are dictated by European market demands. The Japanese, on the other hand, have shrewdly built U.S.-dedicated platforms (usually built at U.S.-specific plants) to give this market specifically what it needs. Could Volkswagen develop a new platform that would be a U.S.-specific platform and a springboard for a variety of models to be built off of it? A proper mid-size platform could be utilized to build an SUV, a wagon, a minivan and more all dedicated and developed specifically for the U.S. market.

So let’s look at a theoretical model lineup from top to bottom:

– Phateon: Flagship sedan

– Touareg: Luxury/premium SUV

– Passat: repositioned as a potential E-class/5-series/A6 competitor at a better value but clearly above Accord/Camry

– Midsize SUV: 3rd row seating, in-car entertainment, family hauler priced $25-$38k

– Jetta: repositioned as an Accord/Camry competitor but still European in flavor and options

– Minivan: built on above Jetta platform

– Golf/GTI: brought over from Germany as is

– Small SUV: CRV competitor

– Beetle

– New entry level Sedan

– New entry level lifestyle vehicle – something like a Honda Element/Scion XB and SUV mix for young people

Splitting it up further you could have two new platforms or one platform that has long and short wheelbase versions:

New U.S. A-platform:

– Entry Sedan

– Beetle

– Entry Life-style vehicle

– CRV competitor

– small sportscar/coupe

New U.S. B-plaform:

– Jetta

– Jetta Wagon

– Minivan

– Midsize SUV?

– Convertible/Coupe

All that looks interesting on paper but there is one nagging concern that I have, and a fundamental question Volkswagen will have to seriously answer: Does Volkswagen want to sell volume or continue to be an entry-level European car company in America? The current demographic/psychographic of customers expects the latter and purchases a Volkswagen because it is an entry-level European car. On the other hand, Volkswagen *could* substantially increase sales by catering specifically to the Accord/Camry market. That demographic/psychographic is quite a bit different than the current VW base and would put Volkswagen in the postion of having to compete with Honda and Toyota, not only with product, but with customer serivce and quality.

So, from a pure business standpoint do you “sell out” and move a European car company to compete directly against heavy volume selling nameplates and give up your current customer base (to an extent)? Or should Volkswagen stick with their European roots and instead push to make great strides in quality, customer service, cost savings, shorter life-cycles and more diverse product offerings in segments they should be in?

Let me know what you think on this one and sound off with your thoughts in the discussion forum topic below.

Happy motoring!

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