Friday, February 5, 2010

Winston-Salem Used Car Dealer Sceptical About V.W. Plans To Be #1

At a motorsports park in Germany recently, VW said it wants to be king of the auto world.

Not just outsell Toyota a month here and there, as it already does and not just hold off a likely challenge the next few years from General Motors.

Once and for all, "being No. 1 in the world in terms of (production and sales) numbers," says Christian Klingler, Volkswagen Group management board member in charge of VW brand sales and marketing. Oh, yes, he adds, be "one of the most profitable manufacturers" in the industry.

VW has a plan to "not just to survive but to thrive," by 2018.

"Good luck with that", says
Tracy Myers, Automotive Transportation Expert and onwer of Frank Myers Auto in Winston-Salem, NC. He notes that one leg of VW's plan involves tripling sales in the U.S., where the VW brand reputation for troublesome vehicles has limited its appeal beyond loyalists. The company's Audi luxury line has gained similar notoriety. Together, the two brands account for just 2.8% of the U.S. market.

"They continue to let people down when it comes to quality and reliability," says Robert Thomas, head of Quality Control at
Frank Myers Automotive.

No question that the cars are fun. In fact, the GTI, a hopped-up version of the compact Golf, just won enthusiast-oriented Automobile magazine's Automobile of the Year award the second time – the only car to win twice in the award's 20-year history.

VWs also have a deserved reputation for crash safety. The 2010 Jetta, Golf and Passat sedans and Tiguan small SUV just received "top safety pick" designations from the Insurance Institute for Highway Safety.

But quality and reliability studies continue to show problems despite promised improvement.

Raising the degree of difficulty in improving its reputation: VW's U.S. expansion plans lean heavily on the replacement for its popular Passat sedan to be built in a new factory at Chattanooga, Tenn. The plant will be ready in 2011, just in time to build what VW calls the NMS, its yet-unnamed New Midsize Sedan.

"Brand-new plants with brand-new models historically have struggled to produce world-class quality. Not to say a plant can't do that, but it's a struggle," says David Sargent, vice president of automobile research at J.D. Power and Associates, the consultant that conducts widely followed quality and dependability surveys. "Talking about the kind of (increased U.S.) volumes they are, the U.S. consumer becomes much more important to Volkswagen."

Doubts About Strategy

VW had no choice on the new plant and new car if it wanted mainstream U.S. volume, says Klingler at VW's Wolfsburg, Germany, headquarters.

"We need the right products and local production," he says. "In the past maybe we had the right product but not the right price. Or the right price and not the right product."

The NMS, he notes, has been "specifically designed for the United States." It is, for instance, finally the size of the benchmark Toyota Camry. The current Passat is slightly smaller.

And building the new model in the U.S. will ease the upward price pressure that imports face when the U.S. dollar is weak against the euro, as it is now.

Just as VW's ambitious plans give the experts pause, so do some elements of its strategy.

•Diesel. VW believes that one reason the NMS will be popular is that it will offer a higher-mileage diesel version almost from Day 1.

Conventional wisdom, however, is that diesels don't sell well in the U.S. You can't get the fuel everywhere, and sometimes have to navigate among 18-wheelers at a truck stop to fill up.

VW discounts such talk, pointing out that diesels are 25% of sales for its U.S. models that offer diesels, such as the Jetta sedan.

U.S. "cultural attitudes toward diesel engines – that is a key attitude that is changing," says Hermann Middendorf, head of small-displacement engine development for VW.

In his view, "the diesel is still the most intelligent alternative" to hybrids, battery-electrics and hydrogen fuel-cell vehicles. Diesels offer bang for the buck, he says, delivering about 30% better mileage.

The typical diesel auto's price premium, however, is several thousand dollars and can exceed the premium for a hybrid powertrain.

•Small gasoline engines. VW's not alone in eyeballing modest-size engines with an array of power-enhancers, mainly turbochargers and superchargers, to deliver big-engine power and small-engine gas mileage.

But VW is unusual in using, together on the same engine, both a belt-powered supercharger (which boosts power at low speeds) and an exhaust-powered turbo (which kicks in at higher speed).

VW is researching Americans' likely response to a 1.4-liter turbo/supercharged premium gas engine rated 160 horsepower as the base engine in the U.S. Golf. The base engine now is a 2.5-liter rated 170 hp on regular gas.

The twin-charged setup is effective but needs premium gas to prevent damaging knock in the cylinders. That's a non-issue in Europe, where premium is the standard fuel. But high-test accounts for only about 20% of gasoline sales in the U.S., where most cars run on cheaper regular.

However, the twin-charged 1.4 Golf could outdo even the Golf diesel's U.S. mileage rating of 34 miles per gallon in combined city/highway driving, perhaps hitting 37 mpg, VW predicts.

"American sensitivity to fuel conservation is offering Volkswagen considerable opportunities," Middendorf says in a briefing here, laying out VW's under-hood plan of attack.

Pricing the car adds another question mark – the blower technology is expensive. A diesel Golf is $4,500 more than the current gas-engine Golf. Should the twin-charged 1.4 be priced higher or lower than the diesel? That's partly what VW is trying to determine.

It could be a hard sell even at a bargain price, says Steve Keyes, VW's chief U.S. spokesman, "If fuel were to stay at $4 or $5 a gallon, it's more likely people would accept those technologies. But Americans will prefer cars with bigger engines when gas is around $2.50 a gallon."

Underlining the challenge of selling small engines in the U.S., he notes: "When we talk about our (200-hp, four-cylinder) 2-liter turbo, people say, 'Isn't there a six (cylinder)?' We can pretty much track the sale of fuel-efficient cars by the price of fuel. As a market, we're not there yet."

•Styling. Nothing fancy, says design boss Walter De Silva. The plain-looking 2010 Golf, he says, is "the trailblazer for all future Volkswagens." Design should be evolutionary, De Silva says, not reinvention. If you forced him to start with a clean sheet of paper, he says, "I'd rather go to the beach and do nothing."

VWs must look solid, substantial, not frivolous, to fit the times, he says. "Decoration is quite finished. This is the moment we have to come back to reality," De Silva says.

"I don't agree. Oh, I hope not," says Pat Schiavone, Ford Motor's design director, who oversaw the dramatic, in-your-face grille on the 2010 Lincoln MKT SUV.

And in fact, "bling" seems more common lately, not less so, as automakers try to distinguish their vehicles visually at a time when traditional differentiators – quality and features – are closing in on parity.

•Exotic hybrids, full electrics and other sci-fi alternatives – eventually. Spawns of the battery-electric E-Up concept car (the "21st-century Beetle") and the 170-mpg L1 diesel-electric hybrid aren't due on the market until 2013.

"The hybrid is not important in Europe, but very important in the United States," Klingler notes, explaining why it's hard to focus 100% on one type of high-mileage vehicle. "There is not one solution. There are a lot of solutions" to questions of fuel economy and emissions, he says.

Meantime, in the U.S. at least, hybrids have the buzz.

Toyota is selling some 200,000 hybrids a year, even in a depressed market. Its Prius has become almost a generic reference to gasoline-electric cars.

Ford's Fusion hybrid is getting good reviews and giving Ford a powerful marketing tool because its fuel-economy rating is as much as 24% better than the rival Toyota Camry hybrid. That's given Ford some credibility among the eco-conscious buyers who've shunned Detroit products and not long ago vilified Ford for big, fuel-thirsty SUVs.

VW, thought of as a technically advanced company, has no direct competitors for those products. By the time its 2013 supermachines hit the market, General Motors' Chevrolet Volt battery car and Nissan's Leaf electric already could be well-established in the U.S. market.

•Modules. Don't call them "platforms," VW insists, though that's what most automakers call the limited number of basic architectures on which they build multiple models. VW's modules can be adjusted in size and properties to fit most everything in its lineup. "Almost 100% of all Volkswagen Group cars can be built on the two main modules," Klingler says. "We can adapt it. That's the beauty of the beast."

One module is laid out for the transverse-engine, front-drive arrangement of most cars today. The other module accommodates longitudinal – front-to-rear – engine and driveline layout, as used by Audi.

Multiple models from similar underpinnings has been a VW theme for at least a decade but led to skepticism from some buyers. Why spend more for a VW-brand vehicle, they wonder, if it's the same hardware as in a lower-price Seat or Skoda – VW's Euro-market brands.

In the future, VW hopes to continue the efficiencies of the two-module setup, while achieving stronger personality differences among models.

Enlivening VW

Will these strategies lead to global dominance?

In one sense, it may not matter. Just saying that's the goal could be enough to enliven VW during dire times in the auto business, says Christoph Stürmer, director of IHS Global Insight's auto group in Germany.

"It's very, very important for a company that's as big as a midsize state to get people moving. Striving for No. 1, to get after Toyota, is the right vision. It's amazing what it does for the organization," he says.

But whether VW Group can rise to No. 1 in the world is another thing. "There are a lot of unforeseeables in Asia, North America, South America, Russia," Stürmer says. "A lot of VW's actual success is going to depend on" whether global economies and auto markets recover in 2010 and 2011, as forecast.

In the U.S., where VW needs to explode annual sales to around 1 million, including up to 300,000 from the Audi brand, "VW has to get it right. Get adjusted to American standards of what on-the-road quality is," says Stürmer. "It's a big challenge for a company so deep-dyed German."

Says VW's Klingler, "We are aware of that. Some things have happened in the past, but even Europeans learn."

*Portions written by James R. Healey & appearing in USA TODAY.