Beetling back to success – The Economist (blog)
VOLKSWAGEN is nothing if not ambitious: its plan is to dethrone Toyota as the world’s biggest carmaker. It has already nosed past rival General Motors and has plenty of momentum in China, the world’s largest car market. But one key country is holding back the German giant: America.
It was not supposed to be this way. A few years ago VW was leading America’s automotive recovery. The firm reported some of its best sales figures since the era of the original Beetle—and said it wanted to sell at least 800,000 vehicles per year in America by 2018.
Then, rather suddenly, things went south. Although Volkswagen of America is still well ahead of where it was before the Great Recession, it has suffered two consecutive years of declining sales. And in the first five months of 2014, as rivals such as GM, posted some of their best numbers in a decade, the VW brand’s sales dropped another 15%.
With sales in America barely above 400,000 in 2013, 7% below the year before, doubts have been growing as to whether VW will be able to reach its target of 800,000 by 2018. And Michael Horn, a 25-year VW veteran who recently took over operations in America, concedes that goal is effectively out of reach, at least within the next four years. “We have to be realistic,” Mr Horn said in a recent interview at the launch of VW’s new Golf hatchback in San Francisco. “The vision is right, but timing is a huge challenge.”
Opinions differ about why VW has lost ground. One reason is hubris, argues Stephanie Brinley of IHS Automotive, a market-research firm: the sales target, she says, was simply too ambitious. More fundamentally, China “took precedent” over America, in the words of an insider. Resources were shifted, models for the American market delayed. The CrossBlue, a crossover-utility vehicle, for instance, should be in production by now. Mr Horn’s predecessors were counting on it to build momentum; its absence has left a huge hole in VW’s line-up in a market where utility vehicles are still among the biggest sellers. To make matters worse, the launch of the American version of the updated Golf also came late.
These problems notwithstanding, the carmaker is still in much better shape than it has been in years. Once the dominant brand for imported cars in America, it saw its lead evaporate in the 1970s as drivers abandoned the original Beetle in favor of newer, more fuel-efficient Japanese models. By the early 1990s annual sales had dropped to around 54,000, and VW gave serious thought to abandoning the American market, following other European brands, such as Renault, Peugeot and Fiat. The firm chose to stick it out, but sales rebounded only gradually.
Mr Horn hopes that he will be able to stabilise sales as the new Golf finds its market. He must also keep his fingers crossed that management in Wolfsburg, VW’s global headquarters in Germany, finally moves ahead with the CrossBlue. The original plan was to produce it in VW’s new assembly plant in Chattanooga, Tennessee, but a controversy over unionisation, which the firm’s management supported, may make it reconsider those plans.
Mr Horn, for his part, just wants the new utility vehicles, whether they are built in Tennessee or a plant in Mexico, where the new Golf is now rolling off the assembly line. “We’ll only succeed in America if we build the cars people want here,” he said. Mr Horn has good reasons to be optimistic: Martin Winterkorn, VW’s chief executive, recently acknowledged that the firm cannot take the industry’s top spot if it continues to neglect America.