published Thursday, January 23rd, 2014

Harsh talk for Volkswagen: 'Disaster' label signals all is not well with U.S. operation

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AUTO SALES

Key brand U.S. sales in 2013 by number and percent change:

* Chevrolet: 1.94 million, up 5.2 percent

* Dodge: 596,343, up 13.6 percent

* Ford: 2.4 million, up 11.2 percent

* Honda: 1.3 million, up 7.4 percent

* Toyota: 1.8 million, up 7.3 percent

* Volkswagen: 407,704, down 6.9 percent

* Volvo: 61,233 down 10.1 percent

Source: Kelley Blue Book

After spending more than $1 billion on a production plant in Chattanooga and crafting a made-for-America Passat, Volkswagen officials again are questioning how to bridge the German and U.S. markets.

VW-brand sales fell 6.9 percent last year in America, the world's second-biggest car market, even as total U.S. vehicle sales grew by 7.6 percent.

The drop-off has the automaker recalibrating the moves it needs to make to succeed here.

On Wednesday, VW's top labor representative dubbed the carmaker's U.S. operations a "disaster," urging more models and swifter decisions to help revive the German group's fortunes in America, according to Reuters.

Bernd Osterloh, VW's works council chief, noted in Wolfsburg, Germany, that a year after the CrossBlue sport utility vehicle was unveiled at the Detroit auto show, it's still unclear where the model will be built. Chattanooga is said to be the front-runner to make the SUV, ahead of VW's Mexican operations.

VW's 2008 announcement that it would build an assembly plant in Chattanooga was a return to making cars in America after the company shut down its only other U.S. plant in 1988. That New Stanton, Pa., factory at one time employed more than 5,000 workers and operated for about a decade, but it now sits empty.

Michael Horn, appointed late last year to lead Volkswagen of America after the sudden departure of Jonathan Browning, has cited his experience and know-how in the effort to help get U.S. sales back on course and reach ambitious company goals.

"The market is very close to me," Horn said in an interview last week in Detroit. "I really like it. It's close to my heart. I really like Americans, the culture. It's straightforward. You just talk straight."

Horn, a German and a 23-year company veteran, said he also knows the VW culture and what it takes to move company decisions forward.

"I know how decisions are made," he said. "I know how projects are being calculated. I know the politics in the system and what you need to do."

However, challenges remain for VW to hit U.S. sales targets.

Karl Brauer, senior analyst at Kelley Blue Book, said the automaker was caught with an aging vehicle lineup when buyers headed back to the showrooms amid the economic recovery.

"Even as the U.S. economy, and its domestic manufacturers, have recovered in the past year, Volkswagen has lost ground," he said.

  • photo
    Chattanooga's Volkswagen plant is the target of outside anti-union groups.

In a year of relatively moderate gas prices, overall SUV and pickup truck sales have risen at the expense of cars, a segment where VW is strong. But, VW's sport utility vehicle lineup of the Tiguan and Touareg are both older and expensive, and the company doesn't sell a truck in the U.S.

Brauer said Horn will face similar short-term product challenges. For example, the new midsize SUV won't be ready until 2016.

But as new vehicles enter the pipeline, Brauer said, Horn is "well positioned to potentially lead a VW recovery in the U.S."

VW is the world's third-largest carmaker behind Toyota and GM. It's the No. 1 seller in Germany, all of Europe, and in China, which has surpassed the U.S. as the largest auto market. But VW's market share in the U.S. last year was only around 4 percent.

Still, Horn maintained he's starting his new job in the U.S. with "a good base" erected by VW.

While VW brand sales fell last year, they still were above 400,000 units for back-to-back years for only the second time in four decades.

Also, VW luxury brand Audi's sales were sharply higher in 2013, up 12.7 percent in North America. That has led Volkswagen Group CEO Martin Winterkorn to restate its target to sell 1 million VWs and Audis in the U.S. by 2018. Combined, VW and Audi sales were about 600,000 for 2013.

Winterkorn said Audi is "moving up another gear" in North America. A new Audi SUV plant is under construction in Mexico. That's part of $7 billion in new investment VW plans to put into North America over the next five years.

"VW feels at home in America," Winterkorn said.

Osterloh, who also sits on VW's supervisory board, added on Wednesday that a potential vote by hourly workers at the Chattanooga plant on representation by the United Auto Workers, which is looking to set up a works council, is unrelated to the SUV decision.

He told the Bloomberg news agency that timing has been hampered by legal complaints filed by four Volkswagen employees at the site against the UAW's initiative.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.

about Mike Pare...

Mike Pare, the deputy Business editor at the Chattanooga Times Free Press, has worked at the paper for 27 years. In addition to editing, Mike also writes Business stories and covers Volkswagen, economic development and manufacturing in Chattanooga and the surrounding area. In the past he also has covered higher education. Mike, a native of Fort Lauderdale, Fla., received a bachelor’s degree in communications from Florida Atlantic University. he worked at the Rome News-Tribune before ...

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