Why Can’t VW Come Back In America? It’s Too Small

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Volkswagen Group says that, despite its diesel scandal, it will make a comeback in the U.S.  A turnaround of any magnitude is nearly impossible. The scandal notwithstanding, VW is far too small in America, and faces far too many strong, and in some cases not so strong but nimble, competitors.

VW management believes that the company can cut its losses to zero in America as early as 2020. Management could use its small progress this year as early evidence. Sales are up 7.7% through April, to 103,847. This only includes the VW flagship brand, and not the Audi or Porsche units. Several of the VW brand’s major models, including the Beetle, Passat, and Golf, posted gains.

The VW’s brand’s share of the U.S. market in the first four months of the year was 1.9%, up from 1.7% in the same period of 2016. That puts it at about the same level as Mazda, one of the walking wounded among the car companies which hoped for a U.S. success.

One of VW’s problems is its small model line. The Golf, Beetle, Passat, and Tiguan are the only models which have very modest sales. These cars are part of the extremely crowned low priced, high gas mileage section of the U.S. car market. Every major manufacturer selling cars have line ups which compete against each VW. VW also has only one crossover, the Tiguan. If anything, the U.S. market is ruled by crossovers, SUVs, and pick ups now. This puts VW at a substantial disadvantage

VW’s other major problem is that it receives mediocre grades in consumer studies. Among the best examples of this is research from J.D. Power, the gold standard of consumer attitudes toward auto brands. In the J.D. Power 2017 Vehicle Dependability Study, VW ranked below average, with a score about the same as Mazda. In the J.D. Power 2016 U.S. Initial Quality Study, VW ranked a single point above average with 13 other major brands above it.

VW has to take a fairly large share of market from other car companies which sell vehicles in the U.S. to claim a success. This is not likely to come from the very large manufacturers like General Motors Company (NYSE: GM) and Toyota Motor Corporation (NYSE: TM) which have huge dealer networks, large marketing budgets, and large model line ups. And VW will find every sale against smaller competitors like red hot Subaru will be very difficult as all of these wrestle to remain viable in America. Put another way, VW’s growth in the future is not likely