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Once-Hot Volkswagen Attempts
To Reverse U.S. Sales Decline
Auto Maker's Steps Include
Bargain-Basement Pricing,
Fresh Look at Model Lineup
By STEPHEN POWER
Staff Reporter of THE WALL STREET JOURNAL
September 8, 2005; Page A8
FRANKFURT -- Volkswagen AG -- one of the hottest car makers among young, upwardly mobile Americans just a few years ago -- is now scrambling to halt a disastrous slide in its U.S. business.
Hurt by poor quality, high costs at its German plants and strategic missteps, Volkswagen will suffer a substantial loss in North America this year and another in 2006, following losses of €907 million ($1.13 billion) in 2004 and €168 million in 2003. This year, its U.S. sales have fallen 18%, after a drop of 24% from 2002 to 2004, according to consumer-research firm Edmunds.com.
Now, under the direction of a new, hard-nosed executive with experience turning around a U.S. car maker, Volkswagen is resorting to drastic measures to shore up its presence in the world's largest automobile market -- including cutting bargain-basement deals on the new Jetta, a model launched just a few months ago.
More-aggressive pricing, which VW had tried to avoid in the past, comes after a meeting between its U.S. dealers and Wolfgang Bernhard, who joined VW this year after helping DaimlerChrysler AG's Chrysler unit to profitability by slashing costs and rejuvenating its model lineup.

At the same time, Mr. Bernhard is leading talks with DaimlerChrysler about having Chrysler build minivans that Volkswagen could label as its own and sell in the U.S. The talks could lead to a deal this month.
VW -- which sold about 30,000 vehicles in the U.S. last month, according to Autodata Corp. -- needs help on a minivan because it is desperate to add new models in the U.S. For much of the past five years, it tried to become more of a luxury-car maker, rolling out several upscale models, including a $70,000 luxury sedan called the Phaeton. But the attempted image makeover fizzled, and sales of the Phaeton tanked, leaving dealers starved for bread-and-butter models needed to stay competitive.
"Right now, VW is essentially ignoring half the U.S. market by not having much of a selection in the light-truck market," says Susan Jacobs, an auto-industry consultant in Rutherford, N.J. "During the 1990s, VW was able to attract young people to their brands. It's essential VW offer a vehicle that meets the transportation needs of families if they want to retain all those VW customers as they age."
Along with a minivan, the company hopes to add a compact sport-utility vehicle that would help Volkswagen retain customers ready to graduate from its Jetta and Passat sedans, the mainstays of its current product line, and offer another choice beyond its upscale Touareg SUV.
Producing the small SUV presents problems because high wages in Germany, the weak dollar and brutal price competition are causing VW to lose money on most of the cars it sells in the U.S. Although VW builds cars around the world, most of its work force remains in Germany, where hourly wages in the auto-manufacturing sector are the highest in the world -- an average of €34 ($42), compared with €25.49 in the U.S., according to the German Automotive Industry Association.
"The key problem of the Volkswagen group is that on today's cost structure...we are not able to make a profit in the States," Volkswagen Chief Executive Bernd Pischetsrieder said.
Volkswagen is pushing its German unions to accept job cuts and pay reductions, a politically explosive step in a country with near-record unemployment levels, in an effort to make its cars more competitive on cost in the U.S. and other key markets such as China.
Volkswagen officials said recently the company already has "several thousand" more employees than it needs in Germany and that some job cuts there are inevitable.
The spate of losses in North America has also spurred VW to re-examine its view of the U.S. market, despite decades of experience there. It recently sent a team of 23 workers to California to study consumer trends and American automotive culture and to analyze American companies known for good customer service such as Nike Inc. and Starbucks Corp. This week, Volkswagen dropped its longtime advertising firm in the U.S. in favor of a rival firm known for unconventional marketing techniques on behalf of BMW AG's Mini Cooper brand.
In another initiative, VW is also listening to critics such as Frits Pil, a business professor at the University of Pittsburgh, who calls Volkswagen "a good example of a company following the strategy that we argue against -- the idea of dumping stuff into the market and hoping it will sell."
Volkswagen officials declined to comment on their research group's findings. But in an article published recently in Volkswagen's employee newsletter, one worker assigned to the effort echoed Mr. Pil's assessment.
"What absolutely astonishes me is that we still don't heed the opinion of the customer in America," the team member, Matthias Grosser, said. "If we're in the fortunate position to create cars specially for this market, then we really should make them for this market, and for these customers."
 

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Re: VW in Decline (hersheytx)

A good article about the issues facing the company. Hopefully they can turn things around and get some more vehicles in the market, improve their quality, and get back to the basics of building good value cars. In the meantime, take heed of this when buying a Jetta!
 

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Re: VW in Decline (hersheytx)

Quote, originally posted by hersheytx »


At the same time, Mr. Bernhard is leading talks with DaimlerChrysler about having Chrysler build minivans that Volkswagen could label as its own and sell in the U.S. The talks could lead to a deal this month.

http://****************.com/smile/emthdown.gif

NO!
 

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Re: VW in Decline (FLank_Sinatra)

You hadn't heard about that?
I'm thinking they will be VW-designed, Chrysler-built rather than Chrysler-designed and Chrysler-built. I would imagine VW is just taking advantage of Chrysler's workforce and their insight based on having one of the best-selling minivans of all time.
 

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Re: VW in Decline (JohnTT)

Quote, originally posted by JohnTT »
Yep, a minivan....that's what people want in this market

Minivans are an epitome of a "family car" in the eyes of most. So, if VW wants to cover some ground, offering a TDI Minivan might help some. Not screwy at all. A TDI Minivan, Chrysler-built, with alot of features, could be offered cheaper than a passat wagon would run.
 

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Re: VW in Decline (BRM10984)

Quote, originally posted by BRM10984 »
You hadn't heard about that?
I'm thinking they will be VW-designed, Chrysler-built rather than Chrysler-designed and Chrysler-built. I would imagine VW is just taking advantage of Chrysler's workforce and their insight based on having one of the best-selling minivans of all time.

Growing up in the 80's - every Mom I knew owned a Caravan.
As far as I know historically the only issues they had were rusting and the occasional yet infamous Chrysler transmission plague. I'm not totally opposed to this partnership. I just hope they get moving on it. I get loads of leads / phone ups on the Eurovan.
 

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Re: VW in Decline (undeniable)

and on the plus side, anything like that will still be powered by a vw motor.
what i think vw should look into doing is building plants here in the states. move some of their workforce over here to run things and anybody who wants to live here instead. that way they can free up room for employees in germany and provide jobs here as well. this will also allow them to creat a r&d team here made up of americans to study american wants and needs. basicly they should do wht honda, toyota, nissan, & mazda did. just move the production of cars for this market to this market. that inturn can lower the costs of the cars and help make them more competitive in this market.


Modified by HAVOK GT at 9:58 AM 9-8-2005
 

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Re: VW in Decline (HAVOK GT)

Quote, originally posted by HAVOK GT »
and on the plus side, anything like that will still be powered by a vw motor.
what i think vw should look into doing is building plants here in the states. move some of their workforce over here to run things and anybody who wants to live here instead. that way they can free up room for employees in germany and provide jobs here as well. this will also allow them to creat a r&d team here made up of americans to study american wants and needs. basicly they should do wht honda, toyota, nissan, & mazda did. just move the production of cars for this market to this market. that inturn can lower the costs of the cars and help make them more competitive in this market.

Modified by HAVOK GT at 9:58 AM 9-8-2005

I think they may still be sour over Westmoreland or something.
 

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Re: VW in Decline (meglove)

Quote, originally posted by meglove »

Growing up in the 80's - every Mom I knew owned a Caravan.
As far as I know historically the only issues they had were rusting and the occasional yet infamous Chrysler transmission plague. I'm not totally opposed to this partnership. I just hope they get moving on it. I get loads of leads / phone ups on the Eurovan.

Yep. http://****************.com/smile/emthup.gif
 

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Re: VW in Decline (undeniable)

I think VW is caught in a dilemma - They have always marketed their products here as inexpensive German-engineered cars, for those who want a BMW or Audi, but can't afford it. Their customers put up with some quirks and reliability issues, in order to get the German feel.
VW owners develop emotional attachments to their cars (a mixture of love and frustration, like all good relationships!)) The first Golf/Rabbit is the classic example. It was way ahead of its time, engineered beautifully, but still affordable. (My uncle drove his 1977 Rabbit into the ground, loving the spartan but well-finished interior, the highway cruising ability, the fuel economy, and the standard Blaupunkt radio that always reminded him that he was driving a German car, not a Japanese econobox. He traded the VW up for a Bimmer in 1994, after putting 300K on the car, which was still running fine, but rusting badly).
VW's apparent new direction looks to be an effort to compete with Toyota and Honda, playing their game of providing appliance-like cars for all segments of the market. While this may be profitable --if you can convince people that VW can out-Toyota Toyota, which is a big if!-- it will diminish the brand's German character, which is the main reason people choose their products in the first place, rather than Toyota!! A reputation for reliability is not built over night, so VW can't expect that people will buy their cars for that reason in the near future. (People are still buying Japanese cars over GM on reliability grounds, even though GM's reliability is now better.)
My two cents: If VW wants a quick turnaround, it needs to bring its European models to the US - both the Polo diesel (for super economy) and the Minivan it already has (again with the super-economical diesel engine as well as gas). This is the perfect moment to do so -- when we're going through a gas crisis and our dependency on foreign oil is proving to be a huge burden (both in monetary terms and in terms of lives of our young men and women in the middle east (I'm not trying to make a political statement with that point, just talking about public perceptions). VW could seize this moment by becoming a super-progressive brand again, and playing up its unique character. While it costs a lot to federalize European models, it certainly costs less than all the money VW is currently losing.
 

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Re: VW in Decline (undeniable)

Quote, originally posted by undeniable »

Minivans are an epitome of a "family car" in the eyes of most. So, if VW wants to cover some ground, offering a TDI Minivan might help some. Not screwy at all. A TDI Minivan, Chrysler-built, with alot of features, could be offered cheaper than a passat wagon would run.


Agree. But it will be a VW mini van.
Families dont have time for overengineered, overpriced and unreliable vehicles. If mini van families want to save money they buy domestic. If they want to spend more on a mini van they will just buy an SUV. Forget the Japanese. VW cannot compete with them.
It will just become another niche vehicle for surfer crowds or die hard VW fans but not the mass company angel VW needs. It may not even become the above with Chrysler involved.
Unless VW fully moves everything out of Germany I dont see how they can cut prices and not have any volume seller lined up. As echoed months ago, RIP Jetta V.
It seems nothing VW has successfully done has been ever planned. If they can pull a rabbit out of the hat on this one I'd really like to see it.
VW has diesels down flat. With its infastructure in the U.S. and current and future gas/petrol challenges cant VW do something with that?


Modified by BetterByDesign at 7:47 AM 9-8-2005
 

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Re: VW in Decline (GTI 4 RD)

Quote, originally posted by GTI 4 RD »
My two cents: If VW wants a quick turnaround, it needs to bring its European models to the US - both the Polo diesel (for super economy) and the Minivan it already has (again with the super-economical diesel engine as well as gas). This is the perfect moment to do so -- when we're going through a gas crisis and our dependency on foreign oil is proving to be a huge burden

http://****************.com/smile/emthup.gif
They really need to capture a part of the U.S. market and do it better than anyone else. Let the Japanese go electric and VW will take North America diesel. They dont need a new model. They need a niche that applies to all models of VW.
Subaru started branding this successfully with full time AWD at a time when no one even heard of AWD and SUV's. What does Audi do with the Quattro marketing-wise around the same time? NADA.


Modified by BetterByDesign at 8:01 AM 9-8-2005


Modified by BetterByDesign at 8:03 AM 9-8-2005
 

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Re: VW in Decline (BetterByDesign)

Quote, originally posted by BetterByDesign »

http://****************.com/smile/emthup.gif
They really need to capture a part of the U.S. market and do it better than anyone else. Let the Japanese go electric and VW will take North America diesel. They dont need a new model. They need a niche that applies to all models of VW.
Subaru started branding this successfully with full time AWD at a time when no one even heard of AWD and SUV's. What does Audi do with the Quattro marketing-wise around the same time? NADA.


Modified by BetterByDesign at 8:01 AM 9-8-2005

Modified by BetterByDesign at 8:03 AM 9-8-2005

Exactly! I sure hope the "Moonraker" people are thinking along the same lines.
 

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Re: VW in Decline (BetterByDesign)

Quote, originally posted by BetterByDesign »

As echoed months ago, RIP Jetta V.
Modified by BetterByDesign at 7:47 AM 9-8-2005

Um.....did you see the sales increase from 8-04 to 8-05? RIP? Get a grip, the car is taking off, we are in the middle of a re-structure of all our lines, new jetta, and passat are on the ground, new golf/gti will be here in the winter, the passat wagon not too far behind it, new beetle on the ground, and I cant keep any of the beetles in stock! IF VW can give us all the models that we are getting new by march, 2006 WILL be a record year, our product lines are already starting to show strength, and yes, they have their teething problems, but the Jetta has been a solid car for my wife, not a single problem, which I imagine is how most peoples jettas are, not the handful of people who post on here saying its a POS. The Phaeton was never expected to be a volume seller, they have projected 1000 units in 2005, and we should hit it. The touareg needs the V6TDI in the worst way, 26+MPG and around 45K? We would OWN the Lexus hybrid. So even at the dealer level there is a little frustration, but the stuff we have is taking off, at least where we are at, so we are pleased, now if they want to give us another van (sharan anyone?) a smaller SUV, the EOS, and maybe the Polo for a cheap car, just make sure you offer a TDI where it makes the most sense, and do the homework for pricing, the jetta/passat cost more than the competition, but its the strength of the car, and the fit/finish that sells it, pure and simple.
 

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Re: VW in Decline (akuska)

Hate to be a wet blanket here but I hope VW isn't surprised about any of their troubles in the U.S. market.
- Make a reliable car and I will buy it. How hard is this? Even the new cars have quality issues. WTF already!
- Make all cars with the option of cloth seating surfcaces.
- Make a car that doesn't look like a Corolla.
- Offer satellite radio in *all* cars.
- Don't partner with DiamlerChysler to market a minivan. This is stupid thinking. Can't you guys figure this one out on your own?
- Make a Value Edition TDI Jetta instead of asking me to pay $3500 more for the stuff I don't need. Where is the cost savings if I have to pay more money to save money?
Hey VW, instead of spending money trying to do market research on how you think you are going to save your asses, just come over to the vwvortex site and ask us what we think you should do.
I was all set to by a new Jetta but was turned off by the idea of having to put up with leatherette seats and the possibility of speaker rattles.
 

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Re: VW in Decline (CapoVWSales)

Well, you would know more than me so more power to you, but month to month at your location cant give an overall picture of what is happening...
What are the Jetta V's driving off for nowadays compared to when first introduced?
No one here wants to be purposely negative about VW, but we have to face some facts which the article shares.
 

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Re: VW in Decline (BetterByDesign)

well the reason for the decline in sales over the last few years is because the mk4 was a big pile of sticky ****. if you look at consermer reports you can see that the number of problems per 100 vehicles more than doubled with the mk4. looks like now under new leadership and the introduction of the mk5 we will see better quality of vehicles rolling off the lines.
 
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