Turbo Sales In the Passing Lane

In 2014, Volkswagen sold more than 10 million cars for the first time, helping CEO Martin Winterkorn reach his goal four years ahead of plan. But can the German automaker solve its U.S. problems to overtake global leader Toyota?
VW's Martin Winterkorn is vying for first place among the world's car companies, currently held by Toyota's Akio Toyoda. GM's Mary Barra is number 3.

Public speaking isn't Martin Winterkorn's strong point. The chief executive of Volkswagen likes to keep his speeches short, especially the ones in English. His remarks at the beginning of the Detroit Auto Show lasted all of five minutes. But there was no need for Mr. Winterkorn to speak any longer, because he has managed to convince people with actions rather than words.

The 67-year-old executive achieved one of his most important goals before the auto show. Last year, Volkswagen sold more than 10 million vehicles in a year for the first time in its history. At an event at the opening of the auto show in a Detroit restaurant, Mr. Winterkorn said VW's new sales record was "a truly historic milestone."

Significantly, Volkswagen managed to hit its mark much sooner than planned. As Mr. Winterkorn said, "Our initial plan was to reach this goal in 2018."

Not surprisingly, Mr. Winterkorn's entourage was in exceptionally good spirits, especially since the automaker had been the subject of a few unfavorable headlines in recent months.

A massive cost-cutting program for the company's core VW brand was badly received in Germany, as was the poor performance of the company's subsidiaries in the United States. But thanks to the new global sales record of 10.1 million, Mr. Winterkorn can look to the future with optimism again. He predicted that there would be more positive VW headlines this year.

Last year, Volkswagen sold more than 10 million vehicles in a year for the first time in its history, reaching the mark four years ahead of schedule.

After pulling ahead of U.S. rival General Motors, now the world's No. 3 automaker, it looks like Volkswagen could even overtake global market leader Toyota. According to Toyota's own figures, VW's Japanese competitor is only 100,000 vehicles ahead of the Germans. Analysts believe Europe's biggest automaker could very well become the new world market leader this year.

Mr. Winterkorn's team has laid the groundwork for the growth.

Steady demand in China has benefited VW, which has penetrated the Chinese market more successfully than any other automaker. The core VW brand now sells almost half of all its vehicles worldwide in the People's Republic.

Two other big reasons for the sales surge are Volkswagen's financing arm, Volkswagen Bank, and the expansion of VW's model lineup. The group sells more than 300 different models under its 12 brands, which include VW, Audi, SEAT of Spain and Skoda of the Czech Republic.

Even if its palette of models is now being trimmed back, VW still has a much bigger lineup than Toyota or General Motors.

With cost-cutting measures behind him, Mr. Winterkorn could very well take to the stage in Detroit as the world market leader next year. When that happens, his speech is sure to be brief.

The Winterkorn team's goal is to make VW one of the most profitable carmakers, as well as the biggest and most customer-friendly, by 2018.

 

map Volkswagen VW Strong in Europe and China-changed

 

Most auto executives want to be the best and most attractive. And those who can report the highest sales figures are counted among the winners.

To exceed the 10-million sales mark for the first time in its 78-year history, Mr. Winterkorn planned his high-volume offensive with military precision.

First, VW entered the Chinese market earlier than its rivals. Wolfsburg recently celebrated the 30th anniversary of its business in China. The People's Republic is now by far the most important market for the group and its 12 brands.

Chinese consumers bought almost half of 6 million VW-brand cars sold in 2014, and a third of all Audis. And although demand for cars is weakening in China, it is still growing, in contrast to Europe. This will likely benefit Volkswagen, even though the company has been domesticated in two joint ventures with state-owned companies.

And Volkswagen continues to expand capacity, enabling the world's No. 2 carmaker to sustain growth to offset weaknesses in other regions.

Steady demand in China has benefited VW, which has penetrated the Chinese market more successfully than any other automaker. The core VW brand now sells almost half of all its vehicles worldwide in the People's Republic.

But VW isn't faring as well in the United States and Brazil.

Mr. Winterkorn has set up task forces for these problem markets and heads the U.S. task force himself. The year 2015 will likely be a transition year, until new models make possible a turnaround in 2016.

Garcia Sanz, who is responsible for VW South America, is trying to lead the company out of its doldrums there. The economic situation on that continent will likely remain difficult for some time.

The company-owned Volkswagen Bank is also contributing to the boost in sales. Almost half of VW autos are either leased or sold on credit. The VW executive board aims to make even more use of the company bank in the future, especially in China, where consumers still buy cars with cash.

In North America, however, Volkswagen is spending billions to live down its U.S. disaster, where the German company is vastly outgunned by Toyota and has been unable to connect with U.S. consumers on an emotional level.

Over burgers and beer, the attendees traded defiant words.

"We are switching to attack mode," Mr. Winterkorn said in Detroit. He had invited 500 corporate executives and journalists to Fishbone's, a restaurant in Detroit's entertainment district. The message he was trying to send was one of confidence, which Volkswagen urgently needs in the United States.

Three years after opening its plant in Chattanooga, Tennessee, VW has a mess on its hands in the United States. Despite strong growth in the overall automobile market, VW's U.S. sales declined by 10 percent in 2014. Archrival Toyota sells seven times as many cars in the United States as Volkswagen.

And while its competitors are constantly introducing new SUVs, VW is having trouble selling its U.S.-built Passat. The company made the fatal mistake of assuming that a car that sells in Europe would be good enough for Americans.

In North America, however, Volkswagen is spending billions to live down its U.S. disaster, where the German company is vastly outgunned by Toyota and has been unable to connect with U.S. consumers on an emotional level.

"It's been a disaster," said Bernd Osterloh, chairman of the company's non-executive supervisory board. "We only have a limited understanding of the United States at this point," VW patriarch Ferdinand Piech, whose grandfather, Ferdinand Porsche, designed the original VW Beetle, noted.

But this is a shaky verdict for a company that, with 12 brands, has masterfully brought a wide range of cultures under a single umbrella. Still, American consumers remain a riddle to the German company. VW's last hit in the United States remains its original Beetle in the 1960s.

The results have been devastating, with VW selling only 367,000 cars in the United States last year, a 10-percent decline from 2013.

The fact that the U.S. market has grown considerably in the period makes VW's decline all the more painful for Mr. Winterkorn. At any rate, VW is miles from its goal of selling 800,000 vehicles a year by 2018. Even smaller global brands such as Subaru have outpaced VW in the U.S. market.

Now, Volkswagen thinks it has figured out how to crack the U.S. market. Mr. Winterkorn announced two new SUVs in Detroit. Some 200 engineers were hired to focus on the preferences of American customers. VW officials are promising a turnaround by no later than 2016.

The company has also replaced its management, with Michael Horn serving as the new head of its U.S. subsidiary. The automaker plans to spend $900 million to expand the Chattanooga plant.

VW hopes to reach a turning point next year, when its biggest SUV of all time, the Cross Blue, rolls off the production line. Because VW designed the Cross Blue for the U.S. market, the SUV has three rows of seats, a boxy design and, with a length of 5 meters (16.4 feet), is gigantic by European standards.

The Cross Coupe, also to be assembled in Chattanooga, will be introduced a year later. Starting in 2017, the VW Tiguan, a smaller VW produced in Wolfsburg, will also be offered in a longer version featuring three rows of seats. The long version is important because it lets VW step into the popular truck category. In contrast to Europe, car models for the US market are updated more frequently, every two to three years.

To American consumers, the product always has to look new.

On Monday, U.S. automotive journalists sprung a surprise, even for Volkswagen. In addition to the Ford F-150 pickup truck, they chose a Volkswagen as their Car of the Year for the first time in 15 years: the VW Golf, which hasn't been built in the United States since 1988.

They're an inscrutable bunch, those Americans. Maybe there's hope after all that VW can find its U.S. mojo again.

 

Handelsblatt's Markus Fasse covers the aviation and auto industries; Christian Schnell also writes about the car industry and Martin Murphy covers the auto, defense and steel sectors. To contact the authors: [email protected], [email protected], [email protected]