Is Volkswagen Considering Pulling Out of The U.S. Market?

July 18, 2007

For the past three years, Volkswagen’s U.S. operations have lost $1 billion annually. VW has always been up and down in the US market. Before the Beetle was reintroduced 10 years ago, VW was in a similar crisis. Well now the company is having issues again as sales last year slid to 235,000 down from 338,000 in 2002.

Sales of the revised Jetta, Rabbit and Passat models have failed to spark in the U.S., which has forced some executives to discuss the possibility of leaving the US market all together.

According to Business Week, there have been internal conversations that are suggesting that the automaker may eventually close its U.S. operations.

“For the first time in some time, the phrase ‘If we are to stay in the U.S.’ precedes a lot of conversations at VW.”

Many of VW’s problems lie in the quality of their vehicles. Consumers now perceive the quality of VW’s to be less than that of their Japanese competitors. J.D. Power and Associates Inc. ranks VW in the bottom 20% for reliability, quality and service. Many more consumers are paying attention to these ratings than ever before, so it is hurting VW.

In addition to the automaker’s quality issues, there are issues with the current VW designs. The new models have been perceived as bland and straight copies from their Japanese competitors. One example is the new Jetta that looks a lot like the current Toyota Corolla. VW has lost their distinct quirkiness that separated them from their Japanese and American competitors. Rather than trying to remain different, VW has decided to kill such cool cars as the popular Microbus from the 60’s and 70’s that was supposed to be introduced. Instead VW has chosen to rebadge a Chrysler minivan. Also look what has happened to the VW Beetle. When it came back 10 years ago, everyone wanted one. Now ten years later it is an aged car that VW barely cares about anymore. VW has forgotten that the New Beetle saved them from extinction 10 years ago.

The one thing that could help VW is next year is the return of the TDI (diesel) engine in the U.S. It has recently been reported that there is growing interest in diesels in the US as consumers are realizing that hybrids do not achieve the gas mileage that many had hoped. So far Honda, VW and to some extent GM have been the main automakers that have announced plans for diesels in the US. VW and Honda will have them on the market some time next year.

Diesels will help, but they probably won’t save the automaker. VW needs to address their quality and design issues before they can return to the black in the US. What do you think?

VW’s situation in Europe is at the other end of the spectrum as the automaker is now the top selling automaker in Europe.

Full Story:
Business Week