Product, Capacity, Brand-Building Have VW on Targeted Path, Exec Says

DETROIT – Expanding North American capacity, launch of a new flexible platform and improved customer-satisfaction scores are helping propel Volkswagen in its march toward a 2018 goal of 800,000 vehicle sales in the U.S., a top executive says.

VW is beginning to win over more American buyers, particularly with its revamped Jetta and U.S.-built Passat, as quality improves and brand recognition rises, says Volkswagen Group of America President and CEO Jonathan Browning.

But he admits that while consumer awareness of VW compares favorably with other brands, the German auto maker is not converting shoppers into sales as successfully as its competitors.

“People are aware of the brand,” he tells the Automotive Press Assn. here. “But when they’re shopping for a vehicle, they say Volkswagen isn’t right for (them) right now. That’s a key point we have to manage.”

Browning expects measures taken to improve quality and brand perception will help turn the tide. VW finished a dismal 28^th out of 32 brands measured for initial quality in J.D. Power and Associates’ most recent survey, a ranking the auto maker says it is addressing with design changes, better manufacturing consistency and improvements in the way dealers demonstrate vehicle features to customers.

A new Power survey is due next month, and Browning is predicting a double-digit gain.

“Our expectation is we’ll see at least a 10% improvement,” he says. “We believe we’ll begin to see some momentum building.”

Getting cars into customer hands is another problem the auto maker is tackling. Browning points to an expansion under way at VW’s new Chattanooga, TN, Passat plant, which will increase output from 150,000 cars annually now to 170,000-180,000 as 1,000 new workers come onboard by the fourth quarter.

With investment in additional tooling for the assembly, body and paint shops, VW could break some more bottlenecks to boost capacity to 250,000 units annually, he says, adding no decision has been made to take that step.

To hit its target of 800,000 VW-brand sales by 2018, the auto maker says it will need North American capacity of about 560,000 vehicles. With the Chattanooga expansion, plus about a third of VW’s Puebla, Mexico, plant capacity focused on the U.S. market, according to WardsAuto data, the brand will be able to supply about 370,000 units for the U.S. from North America in 2013. VW sold 324,000 vehicles in the U.S. last year.

Production also is freeing up for the U.S. from VW facilities elsewhere, a consequence of slumping demand in markets such as Europe and China. That has helped unleash the flow of diesel engines and some transmission combinations for a variety of models, plus 4Motion all-wheel-drive systems for the Tiguan cross/utility vehicle, Browning says, though overall vehicle supply remains tight.

“The problem is, our dealers are selling faster than we forecast,” he says.

The development of its new MQB flexible vehicle architecture should give the Volkswagen Group a leg up on the competition when it comes to cost, Browning says.

The first MQB-derived models will roll out this year with the Audi A3, VW Golf, SEAT Leon and Skoda Octavia, but ultimately the platform will underpin everything for the VW brand from the Polo B-car to midsize vehicles such as the Passat, Browning says.

The MQB will cut unit costs 20%, trim outlays for developing new spin-offs 20% and slash development time 30%, he says, pointing to a Morgan Stanley estimate of aggregate cost savings of €14 billion ($17 billion) by 2019 as a result of the new architecture.

Browning declines to say how long it will take VW to turn over the bulk of its lineup to the new MQB platform.

The VW exec reiterates his desire to have a midsize CUV in the lineup to compete with the likes of the Ford Escape and Chevrolet Equinox, but declines to say when that might be possible.

“We are studying it,” he says.

Also potentially U.S.-bound are the small Polo and even-smaller Up! models, though Browning says fuel prices would have to rise high enough to pique consumer interest and the vehicles would have to be built in North America to contain costs. “Those are two big hurdles,” he points out.

Meanwhile, Browning reveals only about 30% of capacity at Audi’s new planned Mexico assembly plant will be earmarked for the U.S. That facility will build the Q5 CUV beginning in 2016. Total capacity and the exact location of the plant have not been revealed, but Browning says the majority of output will be headed to other markets that have free-trade pacts with Mexico.

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