Volkswagen AG is promising US dealers a wider model range and lower pricing as the automaker tries to broaden its appeal and push the reset button in the world’s second biggest car market in the wake of record fines and plunging sales.
“We are getting the product we’ve been asking for,” said Alan Brown, chairman of VW’s US dealer council. Volkswagen is also planning to cut the sticker price on cars to boost sales and “is looking at this with a volume mindset,” he added.
VW told dealerships about the shift to a more mass-market strategy for the brand as part of a settlement to compensate it for losses incurred from the emissions cheating.
VW on Thursday agreed to pay 652 dealers about $1.2 billion.
The German automaker said it will make cash payments and provide additional benefits to dealers to resolve their claims, without providing any details.
While VW’s US sales have fallen off a cliff this year, its troubles gaining traction in the market predate the scandal. Dealers have been pushing the automaker for years to extend the US model offerings and build vehicles with less features that can then be priced more competitively.
After opening a factory in Tennessee to build a stripped-down, larger version of the Passat for Americans, the carmaker didn’t follow that with additional cars.
The failures show in the sales. Although the namesake brand accounts for more than 10% of all cars sold in Europe, its US market share has dropped to 1.7%. VW brand’s sales fell almost 14% through July, even as industrywide deliveries rose 1.3%, according to researcher Autodata Corp.
Volkswagen’s US woes stem from struggling to offer the kinds of cars that Americans want to buy. Its SUV lineup consists of two vehicles, neither of which are well-suited to the US. The compact Tiguan is generally too small for Americans, while the five-seat Touareg is expensive, starting at about $50,000. That’s almost $20,000 more than the Hyundai Santa Fe, Toyota Highlander and Ford Explorer, all of which can seat at least seven passengers.
VW has also not followed the practice in the US of updating vehicles annually with minor alterations to draw in customers to the new model year. In Europe, automakers typically overhaul their cars every seven years, with a modest facelift in the middle of the cycle.
Dealers are miffed because they have invested heavily to build new, large stores after former chief executive Martin Winterkorn vowed to lift the VW brand’s annual sales in the market to 800,000 by 2018. The marque last year sold 349,440 vehicles in the market.
“Volkswagen is facing an uphill battle to revive the brand in the US,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. “Volkswagen is struggling with the loser image of the past, and now in the present the brand is burned. They need a good story that assures people it’s really a new start. Just adding another SUV won’t do it.”
The settlement on Thursday ends a lawsuit from auto dealers and resellers who sued VW in the wake of the diesel scandal, alleging fraud and false advertising.
The agreement, which raises the amount VW will pay to resolve US lawsuits to $16.5 billion, removes one obstacle for the carmaker as it seeks to repair its tarnished reputation. While the automaker has already settled with car owners and regulators, VW still faces investor claims and possible criminal charges.
VW also doesn’t have an approved fix for the 562,000 rigged diesel vehicles still polluting US roads.
“The dealers are VW’s front line in this matter, so getting them compensated is critical,” said Rebecca Lindland, a senior analyst for Kelley Blue Book. “Not only do they represent the company to the owners, they’re also impacted financially since they’re hamstrung on what products they can sell.”
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