Diesel Scandal VW Dealerships in Despair

Faced with slumping VW sales, dealerships in the United States are urging the carmaker to lower prices and quickly present a recall plan for manipulated diesel cars. They will visit VW’s German headquarters on Monday.
Without a discount, these cars are hard to sell.

An eerie silence dominated Fred Emich’s showroom of VW cars in Denver on Thursday evening. Not a single customer was in the brightly lit hall.

“The last couple of months were the worst ever,” Mr. Emich told Handelsblatt.

Half a year ago, before the German carmaker’s diesel emissions scandal broke, he was selling around 100 cars per month. But since Europe's largest carmaker admitted in September it had manipulated 11 million diesel cars worldwide, of which 600,000 were in the United States, business has been turned up side down.

In the United States, monthly VW brand sales plunged as much as 25 percent in the last quarter of 2015. In February, the slide continued, with VW brand sales 13 percent lower than in the same month a year ago. Worldwide, VW brand volume sales dropped 4.7 percent, the carmaker said Friday.

Despite the bad sales news, Volkswagen's preference shares managed to rise more than 4 percent to €113.80, or $126.25, on Friday morning in Frankfurt amid a broad European market upswing.

For Mr. Emich and other dealers, what's most important is not the stock price but what happens on the ground. Together with a dozen other U.S. car dealers, he will travel to VW’s headquarters in Wolfsburg, Germany, to meet executives on Monday and discuss the way forward.

We are disturbed to see the scandal’s mismanagement in Germany and the effects it has on the decisions by U.S. regulators. Alan Brown, Head of the U.S. Association of VW Dealerships

VW Group, which also sells Audi, Porsche and other brands, is still in crisis mode and its shares have fallen almost 30 percent since the scandal emerged last September. On Wednesday, its U.S. chief Michael Horn unexpectedly resigned, following chief executive Martin Winterkorn's departure last year and other high-level management changes.

The dealers will travel to Germany as part of a so-called Dealer Product Council, which discusses the carmaker’s product strategy with management every year. This time around, the U.S. dealerships are demanding lower prices for VW cars to turn the tide of slumping sales.

“Prices of VW cars are too high,” said Alan Brown, a U.S. car dealer who owns two auto dealerships in Texas.

Mr. Brown is also is the head of the American Association of VW Dealerships. Among his biggest worries is the sudden departure of Mr. Horn, who had promised financial assistance and new models to boost sales – pledges which seem void after Mr. Horn’s resignation.

“We are disturbed to see the scandal’s mismanagement in Germany and the effects it has on the decisions by U.S. regulators,” the association said on Wednesday. Mr. Horn’s departure “would only serve to expose the company to even more risks,” it added.

Mr. Brown said price cuts were needed, because pricing VW cars just below the premium brands of Audi and rival Mercedes, but significantly higher than those of Toyota and Nissan, “has not functioned in the United States.”

 

 

“On average, our dealerships are making 25 to 30 percent lower sales,” Mr. Brown said. In some cases turnover has dropped by 50 percent.

Mr. Emich from the Denver dealership is also urging VW to quickly present a recall plan for the 600,000 affected diesel cars in the United States.

“VW has to agree with regulators as soon on how the cars can be fixed,” said Mr. Emich, who continues to get regular customer complaints.

To help revive sales, VW also need to focus on a “good value relationship” and abandon its price premium on German engineering quality, Mr. Emich said.

A U.S. incentive program in October, launched shortly after the scandal broke, had functioned very well. “October was our best month ever,” Mr. Emich said.

The dealerships' complaints are only one of many the carmaker faces. VW might cut 3,000 office jobs at its headquarters in Wolfsburg, or 10 percent of its office positions governed by collective bargaining agreements, news agency DPA and Reuters reported, citing people familiar with the company.

A German court in the town of Bochum will rule next Wednesday if a VW owner is entitled to get his money back, after he complained that the manipulated diesel engines constituted a technical malfunction. It is one of more than 600 cases against VW in Germany and the United States, where car owners and investors are demanding financial compensation for the lost value of their cars and VW shares.

Another setback came from VW's truck unit MAN, which Friday reported a 4 percent drop in 2015 revenue to €13.7 billion, while net profit dropped 44 percent to €150 million. Brighter news cam from the group's sports car brand Porsche, which managed to raise net profit 6 percent to €2.3 billion on 2015 revenue of €21.5 billion.

 

Astrid Dörner is part of Handelsblatt's team of correspondents covering finance and U.S. corporations in New York. Gilbert Kreijger, an editor with Handelsblatt Global Edition in Berlin, contributed to this article. To conact the author: [email protected]