Muscle, Processes in Place to Tackle Quality Issue, VWA Says

Volkswagen’s efforts to more precisely tailor its vehicles to American tastes and pocketbooks as it looks to triple U.S. sales by 2018 have been well-documented.

But arguably more important has been the behind-the-scenes recalibration of its product-development process that has given the auto maker’s U.S. arm more say-so in vehicle design and put critical new emphasis on quality and customer satisfaction.

The latest recasting of the VW brand in North America began with a de-contenting of the redesigned ’11 Jetta that was met with a shower of media criticism but embraced by consumers to the tune of record sales in 2011.

Crystallizing the product shift even more so was last year’s introduction of the ’12 Passat, built at a brand-new plant in Chattanooga, TN. Although less luxurious, the new model has a starting price some $7,000 below the outgoing model, making it accessible to a wider swathe of U.S. car buyers.

Encouraging so far, with brand sales up 26.3% in 2011 and market share the highest in 30 years, the Americanization of the VW lineup appears only about half-done. Still in store is a Passat-like treatment for the Tiguan cross/utility vehicle and the expected addition of a new midsize CUV to fill a market gap below the high-end Touareg.

Although the product tweaks are the most visible signs of change at Volkswagen of America, much more has happened below the surface to shore up the VW brand in the eyes of U.S. consumers.

In its latest Initial Quality Study released last June, J.D. Power and Associates ranked VW a dismal 29^th of 32 automotive brands it tracks in customer satisfaction in the first 90 days of ownership. Its score of 131 problems per 100 vehicles ranks it well below the industry average of 107 and is nearly double the defect rate of No.1 Lexus.

But Marc Trahan, who hopped over from Audi of America 18 months ago to become VWA’s vice president-group quality, says the fundamentals now are in place to resolve those nagging quality issues and produce better IQS scores.

“I would say in terms of structure and process, we’re probably about 85% there,” he says. “We’re seeing some improvement (with cars sold since November).

“But it’s almost like a big oil tanker; it takes awhile to turn that thing around. We actually do better than we get credit for, because perception takes awhile to catch up with reality.”

Trahan spent much of 2011 adding mass to VWA’s quality-control muscle. Among the changes is a new structure that gave U.S. officials more leverage in Germany. Meetings are held monthly with key VW management board members to solve product and manufacturing problems and hash out future direction.

“I needed people with more stripes on their shoulders that can really get things done,” Trahan says of a move to elevate a handful of VWA engineers to manager-level positions. “I brought in some high-caliber managers – and by the way, they can all speak German.”

Two groups of about 100 people each were created, one centered on dealer-support activities and the other focused on the factory. Also spawned was a “voice of the customer” operation, consisting of 14 people who pore over third-party quality data and monitor Internet chatter to ferret out complaints from customers.

“And then they’ve got the charge to fix those (defects),” Trahan emphasizes.

He credits CEO Martin Winterkorn with instigating the quality-control push and sparking a cultural revolution at VW’s Wolfsburg, Germany, headquarters that has enabled the American import arm to tackle critical issues. “I’m amazed now at the willingness to make changes.”

In what would have been unthinkable a few years ago, Trahan brings outside consultants along on assembly plant tours to point out potential quality-improving process changes.

“We’re going into plants with people like (manufacturing consultant) Harbour & Associates and J.D. Power and looking at production processes with the eye of the customer,” he says. “We find a lot of times we’re checking things that aren’t customer-relevant, and in that checking process we’re creating another problem that is customer-relevant.

“Last year, we went into every main (vehicle factory), Puebla (Mexico), Wolfsburg and Chattanooga, with these experts to look at things we can change to make sure we don’t have these little nicks on IQS.”

Where the U.S. market once was an afterthought, Trahan says his team now works with product developers “way up in the virtual-reality stage. We utilize J.D. Power and other consultants to look at the cars with us. (That’s) something new.”

VW also has changed its problem-solving methodology to speed fixes to the market. The auto maker employs a 4-stage, 18-week process to identify and resolve defect and design issues. In the past, if the fix wasn’t made right the first time, that 18-week process began all over again.

“Now we have an agreement that if it’s an issue we’ve known about before, it stays (at) the top of the board,” Trahan says. “I told my guys, now we’ve got a really big megaphone” to keep the focus on problems until they are corrected.

Bluetooth software was rewritten because it used German logic, not American, Trahan says as an example of one recent change specifically for the U.S. For the ’13 model year, the manual seat adjuster in the Jetta is being modified and the CC will get a new climate-control faceplate designed to operate the way U.S. customers expect.

“What we’ve learned is, if you work on issues you’re seeing in the U.S. market, they actually have applicability worldwide,” Trahan says. “It’s not just (we’re) ‘dumb Americans who complain about everything.’ We’re way past that. We now realize there’s data and learning we can take from the U.S. market and make the brand stronger in every market. And that’s a fundamental change.”

Following January’s auto show in Detroit, top executives from Germany and the U.S. traveled to Florida to drive several upcoming models in the latest of now-routine, high-level shakedown cruises.

“I think in the first half of last year, we had seven test drives where Winterkorn personally came over to meet with all the top engineers,” Trahan says of the prep work that went into the launch of the new Passat in Chattanooga.

Dealers, the other critical component in the customer-satisfaction chain, so far have proved a strong point, with VW ranking No.4 among mass-market brands on J.D. Power’s Sales Satisfaction Index.

But there is some concern even within the auto maker that as volume increases, retailers may have a tough time keeping customers happy.

To head that off, VW has assembled a small band of dealers who meet quarterly with management as part of a group it calls PROFI, a German quality-improvement acronym Trahan admits he is unable to translate.

“They are our early warning if you will, the canary in the coal mine,” he says. “And we use them as pilots. So if we have a repair process or something new we want to try in the field, we pilot it with them first before we implement it network-wide.”

Last year, the auto maker also launched a “Customer Vow” dealer-training program aimed at ensuring owning a VW is “something to smile about,” says Tim Mahoney, executive vice president and chief product and marketing officer for VWA.

“You sell the first car upfront, but it is the sales experience and service that sells the one after that. That’s what we’re focusing on.”

Mahoney isn’t forecasting sales for 2012, but he says VW is in good position to repeat 2011’s performance, when the brand picked up three-tenths of a point in market share.

“We’d like to see double-digit (volume) growth,” says the former Subaru marketing executive, who joined VWA last May. “And we think that is well within reach this year.”

Mahoney paints a picture of VW’s product lineup as a combination of mainstream models and iconic lines, each carrying varying degrees of German-engineering DNA.

The Beetle, he says, serves both as a metaphor and halo model for the auto maker. “VW as a brand is back, and the Beetle is back now in its third generation.”

A revival of the VW Microbus, shown in concept form at last year’s Geneva auto show, also would interest the American arm as a brand-building niche vehicle, though no production decision has been made, Mahoney says.

“And on the performance side, GTI is sort of a sub-brand,” he adds. “We have a portfolio of interesting products that add a dimension to the brand and keep us from straying into a place where we’re just another big car company.”

On the volume side, the shifting of Jetta and Passat content and pricing is proving a winning strategy so far, despite the early criticism.

“I wouldn’t say (we’ve been) vindicated, but I feel the ultimate market success is the ultimate driver,” Mahoney says. “And we’ve brought a lot of former VW buyers back in, as well as first-time buyers.”

Rounding out VW’s core model lineup would be the potentially revamped Tiguan, which likely would add more cargo-carrying room and be repositioned with a lower base price. A midsize CUV, aimed at the market’s sweet spot, would give VW ammunition for the first time to go head-to-head with the Ford Escape and Chevrolet Equinox.

“We have to be more of a (full-line) car company to get to our growth targets,” Mahoney says. “Which means we have to compete (in the CUV sector).”

Alexander H. Edwards, president of Strategic Vision, says VWA has made great strides over the past few years in its Total Quality study, which looks not only at things gone wrong but also at factors in favorable impressions buyers have of features, styling and performance.

Except for Mini, VW is rated the strongest non-luxury brand by the consultancy.

“We have seen a growing strength with Volkswagen,” Edwards says. “We see customers appreciating the enhanced quality. And when you combine that with the Volkswagen image of fun and individuality, it really creates an overall strong package.”

But he warns VW will need to be careful not to lose its brand essence in the drive to boost volume and go head-to-head with Japanese competitors on price.

“Volkswagen will need to step things up a little bit more, because their excitement boost is coming from the brand and not so much from the product,” Edwards says. “They’re going to have to do some innovative things with product within the next year or two. Otherwise, this little jump they’ve received is going to start to fade.”

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