VWA: Strategy Working for Company, Dealers

LAS VEGAS – Volkswagen of America’s strategy to lower base prices on its core Jetta and Passat models and cut a wider swathe in the market is paying off for both the auto maker and its dealers, the company’s top official says.

Despite the lower starting prices, the revamped Jetta is transacting at the same average price as the model it replaced, while sales shot up 44% to a record 177,000 units last year, VWA President and CEO Jonathan Browning tells the J.D. Power International Automotive Roundtable conference here.

In addition, about 33% of Jetta buyers are new to the brand, with many of those customers representing conquest sales from VW’s key competitors, Browning says.

Passat is transacting only slightly below the model it replaced, despite a base price that is some $7,000 lower. Of the total volume, 18% of Passats sold were priced above $30,000, the VW executive says.

VWA is expected to follow a similar path with future versions of the Tiguan small cross/utility vehicle and a gap-filling midsize CUV that also is on its wish list.

Browning doesn’t reveal any long-term product specifics here, but says the brand will continue to evolve its lineup as it looks for ways to hang on to its customers as they age.

“Young people are naturally oriented to the VW brand,” he says. “The challenge is to keep them. We’re looking to hold onto them, and our portfolio is evolving in that direction.”

Browning counters complaints about unfairly narrow dealer margins, saying 89% of its 600 retailers are profitable, with the average take more than $900,000 annually.

He says throughput per dealer increased from 400 to 500 vehicles in 2011. But market conditions in the U.S. make it tough for retailers, he notes.

“The amount of market information available allows customers to shop very effectively,” Browning says. “As an OEM, we have to make sure the dealer business model is robust and represents a good investment for the dealer.

“You can see profitability improving across the VW franchise,” he adds. “And we’re looking to keep building. You (just) have to maintain discipline.”

Browning doesn’t forecast 2012 sales, but notes several new products coming this year will fortify the brand.

That includes the Golf R performance model, followed by a revamped CC in the second quarter, a diesel-powered Beetle in the third quarter and the Jetta Hybrid late in the year.

Parent Volkswagen in Germany has taken some criticism for making known its goal of becoming the world’s biggest auto maker in 2018, along with a tripling of U.S. sales to 1 million units.

But Browning says the public declaration was needed to change the company culture.

“The biggest benefit of that was the shock to the organization” it delivered, he says. “With that, the U.S. growth strategy became a reality.”

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