Imagine turning 65, looking back and realizing that you peaked in your mid-teens and that you spent much of the last 50 years trying to once again taste the popularity of your youth.
The so-far failed chase by this boomer has been both exhausting and expensive — including a stretch a decade ago spent with a pretty expensive substance abuse problem. But Volkswagen of America is clean now and ready to give it another go, if historically low oil prices and a global pandemic don’t muck up its chances to get back to the 5 percent market share it had in the U.S. half a century ago.
And while the push to grow in the U.S. will ultimately be product-driven, top Volkswagen leaders insist it will be powered not just by electrons and carbon molecules, but by something they know from experience is far more difficult to develop and easier to burn through: trust.
“The absolute bedrock of that 5 points of share and the bedrock of those 570,000 units [in 1970] was, first and foremost, you need to be a well-liked and a well-trusted brand,” Scott Keogh, CEO of Volkswagen of America, told Automotive News late last month.
The brand may be on its way. In 2019, Volkswagen’s sales in a down U.S. market finished up 2.6 percent to 363,322, its highest annual sales since before the diesel emissions scandal. Its sales through February had been up 9.2 percent, before the nation was thrown into the pandemic and sales plummeted industrywide.
As Volkswagen continues to recover from its global diesel emissions scandal, “We are seeing a ton of metrics that tell us we are significantly on our way to being a more liked and a well-trusted brand. And I think if you look at the stats, we had [brand] loyalty last year that was higher than it’s been in the last 10 years.”
Ironically, the German brand may get a boost toward its long-term sales goal from an unlikely source: the social distancing measures used to fight the COVID-19 pandemic.
The outbreak appears to have motivated some consumers — particularly those in urban areas along the coasts where Volkswagen has the greatest concentration of dealers — to rethink a strategy of relying on public transportation and shared-ride services in favor of the security of automobile ownership. Along with Asian makers, Volkswagen stands to benefit if this shift holds because it still has small, affordable sedans and hatchbacks in its lineup to appeal to these buyers.
When the brand launches its first MEB-based battery-electric vehicle this year, the ID4 subcompact crossover, the nation’s collective experiences over the last two months could help that effort as well, Keogh said. As consumers have become aware of the dangers of transmitting the virus via touching shared items such as gasoline pump handles, he says, the appeal of home charging is growing.
“I trust where that [charging] handle in my garage has been versus the handles on every pump at every gas station.”
And as air pollution has subsided while human activity in the United States has been limited by self-isolation, consumers have noticed and liked the change for the better, Keogh said.
“A colleague of mine, one of my board members, said, ‘You know, I climb up this hill, and I’m now able to see Washington, D.C. I’ve climbed this hill for the last five years! I’ve never seen Washington, D.C. [from the top] before,’ ” Keogh said. “You hear the same thing in Los Angeles, because the air is cleaner. There is a big slice of the population that is now saying, ‘Wait a second, I do see the impact,’ ” of what driving emission-free electric vehicles could do for the environment.
Michelle Krebs, executive analyst at Autotrader, said recent studies point to fundamental changes on the horizon for what had been the prevailing trajectory of auto ownership. Though it’s early days relative to the long-term effects of the pandemic, personal auto ownership is likely to rise as urban dwellers eschew public transit and ride-hailing for the relative safety of a personal vehicle. Meanwhile, commuting may change if working from home grabs hold in society. Both trends could affect Volkswagen’s U.S. aspirations, Krebs said.
“Volkswagen now has the right products to capitalize on these trends,” Krebs said.
Volkswagen has spent decades and countless funds trying in vain to understand the U.S. market.
In the late 1970s, Volkswagen bought a half-completed assembly plant outside Pittsburgh from Chrysler, becoming the first foreign automaker to manufacture its vehicles in the U.S. in the modern era. A decade and several hundred million lost deutsche mark later, it closed the plant and retreated to Germany.
“German personalities and American business culture clashed 50 years ago, and they still clash today,” said Tom McDonald, a veteran public relations executive now with Mazda who was on Volkswagen’s PR team from 1967 to 1990, including a long stretch leading the brand’s efforts. McDonald said the rising popularity of Japanese imports, along with persistent quality problems, especially from U.S.-made Volkswagens during that early effort, dragged the German brand down in the 1980s. “A lot of [VW’s] mojo was lost when the manufacturing began in the U.S.”
That didn’t deter Volkswagen, though. In 2005, it launched Moonraker, a pet project of then-VW AG CEO Bernd Pischetsrieder, undertaken after back-to-back losses of more than $1 billion in the U.S. in 2003 and 2004. Nine VW executives moved into a swanky Malibu, Calif., mansion in an attempt to assimilate into American culture and understand why Volkswagen’s cars weren’t selling well in the states. The visitors traveled across the country by plane, train, subway and bus, visiting drag strips and NASCAR races, a Dallas rodeo, spring break at Daytona Beach, the Rock & Roll Hall of Fame in Cleveland and the Mall of America near Minneapolis. They spent three days walking from Long Beach to Hollywood to study how Americans parked their cars in lots and on streets. The team sent video reports to Germany each month to share their findings with executives.
Despite all the effort, the closest the brand got to reliving the glory days of its early time stateside was in 2012 when, riding a crest of what were later discovered to be diesel engines with software used to cheat on emissions tests, the brand racked up 438,134 sales in the U.S., its highest total sales since 1973.
Dealers say and executives admit that part of the issue over the years has been the automaker’s executive rotation system, in which executives spend temporary stints in different markets, such as North America, to gather global experience while working for the parent company in Wolfsburg. The frequent rotations meant the executives would spend 12 to 18 months learning the U.S. market, and a second brief period trying to implement what they thought were fixes, before they rotated out and the process would start over. As the first American to lead Volkswagen in 25 years and given a broad mandate and near autonomy to do what he thinks is best, Keogh is positioned to break that cycle.
Volkswagen of America’s long-term goal to return to the 5 percent market share it enjoyed in the U.S. in 1970 by 2028 wasn’t given directly to Keogh. Instead, he inherited it when he took over for Hinrich Woebcken as CEO of Volkswagen of America in November 2018. Herbert Diess, CEO of parent company Volkswagen AG, issued the challenge to Woebcken, and later to Keogh, because Volkswagen has underperformed in the U.S. for decades.
“I think Volkswagen has big potential here in the United States. Everyone knows Volkswagen. Most people think positively about the brand because they have their history with Volkswagen. We have been talking about your family, and so many families, that owned a Beetle, or they had a [Micro]bus,” Diess told Automotive News in late 2018. “Volkswagen is still present. I think we come now with quite suitable products for the United States.”
In that same interview, Diess laid much of the blame for the brand’s decades of lackluster performance in the U.S. on global headquarters. “Because of a lack of consistency in the strategy, also the leadership, [because] we had so many changes. Probably also because we didn’t listen to the market enough, to the customers, and we always tried to sell the cars we had in Europe, here. We didn’t work on a consistent brand perception, brand message. There was too much change over the years.”
Diess gave Keogh nearly free rein to do whatever he needed to do product-wise to restore the brand’s hippie-era mojo, when VW posted its best-ever U.S. sales and market share totals with just two equally iconic models: the Beetle and the Microbus.
Getting back will require significantly more than two models, however. The brand is doubling up its best-selling crossovers, introducing a two-row version of the larger Atlas called the Atlas Cross Sport this spring, and a slightly smaller — and less expensive — subcompact crossover to complement the Tiguan later in the year. It also begins selling the first of at least three battery electric vehicles this year with the ID4. While some lower-end trims of the Golf were axed from the lineup, along with the Sportwagen and the Beetle, VW kept the GTI and Golf R available in the U.S. For its sedan lineup, VW leads with the Jetta and will freshen the Arteon this year, while the Passat was given another freshening in 2019 to extend its shelf life a bit.
Keogh said Volkswagen “is always going to be great value, which Volkswagen has always done, great access to technology — we basically give you a lot of luxury car technology and features in these cars — and a German enthusiast driving style,” Keogh said. “Those cores will always be there, whether it’s electric, whether it’s an Atlas SUV that is right into the sweet spot of what America likes, or our real niche enthusiast cars.”
The pandemic upended long-term plans for most automakers, including Volkswagen. Under Diess’ 2016 restructuring plan, the money-losing U.S. market was slated to return to the black this year. However, the company last week said the virus has forced it to postpone that goal.
Despite that, Keogh said Volkswagen can find a small silver lining because homebound customers are starting to find his brand again.
“I’m seeing us getting a greater percentage of shoppers, and I’m seeing us getting a greater percentage of search — by a long shot,” the CEO said. “Something is happening here [with these shopping trends], and I think, obviously, that’s something we want to continue.”