Despite recent hits like the Jetta and Passat, Volkswagen has a long history of struggling to snag the elusive U.S. car buyer. The trouble is, would-be VW customers still remember when many Volkswagens were unreliable and expensive-to-fix. After all, a tarnished reputation is difficult to restore when it comes to the second biggest investment of your life.
How is Volkswagen attempting to overcome old stereotypes and reclaim a spot in your garage? To find out, we sat down with the Volkswagen Group of America's CEO Jonathan Browning, who discussed multi-billion dollar investments in the US market, upcoming, as-yet unannounced models, and whether we can expect to see more weirdly named cars like Tiguan and Touareg.
Volkswagen has made ambitious goals about becoming the number one global automotive manufacturer. What does that mean for the U.S. market?
The U.S. market especially is a core part of that strategy, because historically, at least in the recent past, we've underperformed in the U.S. compared to other parts of the world. There's been a very concerted effort to say, "What does it take to change our performance and our presence in the U.S. marketplace?" And so back in 2008, there was a growth strategy that said we need to invest $4 billion in the U.S. market to take this first step in terms of delivering on these long-term goals for the U.S. market. Two very big goals for that were a $1 billion investment in the plant in Chattanooga, Tennessee, and $3 billion in infrastructure and products.
What you see here today [at the LA Auto Show], for example, with the Passat receiving the Motor Trend Car of the Year Award, is the result of the culmination of a number of those things coming together. One thing that sometimes doesn't get the recognition that it deserves is that this was a plan that was put in place just before the recession really hit. Volkswagen said, "We've laid out a plan, we've got a long-term vision," and they didn't waver-one dollar, or one step-in terms of executing that plan. It's a real signal of the seriousness and the commitment to putting the foundations in place for what it takes to compete in the U.S. marketplace.
To some extent, although our loyalty numbers are actually increasing at the moment, but I think one of the things that excites me about the U.S. market is it is the most transparent, dynamic market globally. The advent of social media, the speed of communication, the number of third party sites and commentary on what's happening in the marketplace, this makes it very open. On one hand, that provides a real pressure to do the right thing. On the other hand, it means when you are delivering the right product, providing the right customer experience, that word spreads in momentum and builds pretty quickly. Whilst we've got some ambitious goals for the future, if we keep doing the right things, putting those good habits into the organization in terms of the way we're building the business, that can grow sustainably.
What do you tell people who have concerns, or have been stung by bad Volkswagen experiences in terms of reliability and build quality?
First of all, it's important to recognize the full experience of what customers have today with respect to VW in the U.S. marketplace. We recognize that there are some areas where product execution doesn't meet the requirements of the U.S. customer. But at the same time, take for example the Strategic Vision Total Quality Index, where VW came out on top in terms of that measure of customer-derived quality, customer satisfaction-looking at both the things that excite customers, and the things that perhaps frustrate customers. And when you look at those things together, VW performs very strongly here in the U.S. marketplace. We recognize that the execution of details in the product that need to be addressed, and we're working absolutely on that. I think you begin to see that in the Passat; here's a vehicle that's specifically tailored to the requirements of the U.S. marketplace.
When you look back 4 or 5 years, what was the reason that people were intrigued by the brand, but perhaps didn't put the brand on their shopping list? There were two reasons. One was the perception that the initial purchase price was perhaps out of reach. Secondly, there was a concern over ongoing cost of ownership. [We addressed that with] our product strategy and making the entry prices more affordable, and second, by making carefree maintenance: three years of scheduled maintenance as a part of the purchase price across the whole lineup.
Americans are crazy about SUVs. How do make yourselves unique in that segment?
Already today, Tiguan and Touareg perform very strongly for us here, and we've seen tremendous grown for those vehicles in the market right now. I do believe that Tiguan especially, has tremendous opportunity for the future in the compact SUV segment. At the moment, we have a somewhat limited powertrain offering, but the opportunity to expand that over time and grow our presence in the compact SUV segment. Right now, our focus is on building Jetta, Passat, the all-new Beetle in the marketplace-but Tiguan is really a core product for us going forward, as well.
Can you offer a hint at what area Volkswagen might expand into?
Our first focus really emphasizes going deeper into a number of the segments that we're already present in, like the Tiguan. But if we talk about the SUV array of products, we have the Tiguan and the Touareg today, I do believe there's a pricepoint between those two that would represent the opportunity for an SUV crossover vehicles with three rows of seats. The Touareg is a great executive SUV, I think there's a role for more family orientated, three seat-row SUV crossover that's priced between Tiguan and Touareg. That's a product that we're certainly interested in going forward.
How about naming cars? Are you sticking with more esoteric names like Tiguan and Touareg?
We've got, I think, a great array of names within the VW family-from Beetle, Passat, Jetta, Golf-and then, as you say, some that perhaps don't immediately roll off the tongue as easily like Tiguan and Touareg. But they're all part of the family. And it's very important to have names that are distinctive and strongly associated with the Volkswagen brand. I think there is tremendous empathy towards the Volkswagen brand in the U.S. It certainly struck me when I arrived in the U.S. with VW just over a year ago, that a lot of customers and dealers have these tremendous stories of experiences way back in the past with microbus, with Beetle, and a real warmth towards the VW brand. So the naming of our vehicles, that warmth for the brand is a great asset to have in the U.S. marketplace, and is allowing us to see the momentum we're getting in the market right now.
Empathy is a really interesting word choice, which brings up other emotions like "nostalgia" and things like that, but how does Volkswagen view retro cars? Obviously, the Beetle is what the Beetle is, but in terms of forward thinking, how does the past figure into vehicle planning? Will we get the Up, for instance?
Heritage is very important; you want to know where you've come from, but you certainly don't want to be a prisoner of the past. And that's absolutely our focus within the organization. So, recognize and build on the heritage of the organization, but always looking for innovation and ways of moving yourself forward. There's a whole raft of technological areas where you can say, "These are developments that VW are continuing to push forward on." Whether it's form a hardware point of view, whether it's how we express the brand in the marketplace, those are the things we're always looking to moving forward. So, going to your question about the Up, I think it's a tremendous addition to the VW brand portfolio globally. Right now, we don't offer the Polo or the Up in the U.S., and that's predominantly because the segment sizes are pretty small here in the U.S. It may change in the future, but right now when you look at the opportunities the VW brand has to build the business, and predominantly go deeper into existing segments, we've got a lot of work to do with Jetta, Passat, Beetle, Tiguan, and Golf. Really, it's not a priority to focus on the Polo and Up segments in the U.S., because those are very small segments relative to others here in the U.S. The segments that Volkswagen can reach to and, if customers give us a strong pull signal that those are products they're interested in and will buy for the future, we have the ability to bring those to the U.S. at some point in the future.
How do you plan to sell more diesel models in the U.S.?
For us, that's very much a long-term strategy. We certainly don't plan to have any broad education plan, but we are continuing to focus on customers who are very interested in fuel economy and emissions benefits, but also the refinement and the technology of the clean diesel technology in the vehicles. We're seeing more and more customers coming to VW and being interested in TDI. We're running at just over 22 percent of total sales in the U.S. this year, that's up, I think, 37 percent year-on-year, so it's growing. We've said we expect that portion of the business to increase, and we've seen that increase. We offer the TDI on the Passat, we offer it in that midsize sedan segment. To some extent, we were interested to see how quickly customers would adjust to the proposition of a TDI because no competitors have it in that midsize sedan segment? the initial reaction to TDI on Passat has exceeded our expectations.
What's the hardest part of your job?
Hard, in some ways, suggests difficult or something that's not so enjoyable. This role is really challenging, but it's really exciting. We've got a lot to do in a short space of time, and I think the fact that we've got this tremendous investment and commitment to the U.S. market from the global organization, we've got a very enthusiastic dealer body.
If you look at the NADA survey in terms of dealer attitudes from the summer of this year, our dealers rating of the value of the VW franchise reached an all-time high. They rated us 9.1 out of 10, which placed us third highest of any franchise in the industry. It's the highest level we've ever been at. We've got a commitment from our global organization, we've got a very enthusiastic dealer body, we're seeing momentum in the marketplace, and the products coming in-there's a lot of stuff going on. What we're doing is making sure we're putting the foundations for future growth in, as well as executing today's activities. So, the challenge is making sure you're continuing to focus on those underlying foundations as well as running the business day-to-day, keeping the machine running as well as putting that capability and infrastructure in for future growth. That's a challenge, but it's tremendously exciting.
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