Volkswagen Brand Plots U.S. Turnaround--Again

By William Boston Features Dow Jones Newswires

WOLFSBURG, Germany-- Volkswagen AG says its chronically unprofitable U.S. operation is about to turn a corner and start cashing in on the world's most valuable car market.

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But the company has been down this road before.

Herbert Diess, a former BMW AG executive who runs Volkswagen's namesake brand, is banking on a new fleet of sport-utility vehicles and a new generation of electric cars targeting Tesla Inc. on its home turf to turn VW's fortunes around in America.

"The U.S. is too big a market for us to be a niche player," Mr. Diess told reporters at VW's headquarters on Friday, adding that VW expected to break even in the U.S. market by 2020, for the first time in years.

VW's push to gain market share in the U.S. comes as the company is gradually emerging from its diesel emissions-cheating scandal. In 2015, Volkswagen admitted to rigging millions of diesel vehicles to cheat on emissions tests. Nearly half a million cars were affected in the U.S., plunging the VW brand into a crisis.

VW's U.S. sales rose 10% in the three months to the end of March from a year earlier, following the launch of its Atlas and Tiguan SUVs. Mr. Diess said VW plans to launch two new models in the U.S. market every year, targeting sedans in 2018 and two more SUVs in both 2019 and 2020.

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In 2020, Volkswagen will also begin production of its new family of pure electric vehicles. The first, a sedan modeled after the Golf, will go into production in Zwickau, eastern Germany, followed by new assembly facilities in China and the U.S.

"We have almost returned to precrisis levels within just 1 1/2 years," Mr. Diess said. "And this is all without the diesel model, which we have completely withdrawn from the U.S. market."

The Volkswagen group, whose lineup includes VW, Porsche, Audi, Bentley and Lamborghini, is the world's biggest auto maker by sales. But the VW brand's share of U.S. auto sales was just 1.9% at the end of April, according to data compiled by Motor Intelligence. Including the Audi and Porsche brands, the market share was 3.6%.

This isn't the first time a senior VW executive has pledged to achieve market share in the U.S. that is more in line with its status as the leading manufacturer in Europe and China.

Martin Winterkorn, who resigned as chief executive in the wake of the diesel crisis, predicted in 2014 that VW would sell a million vehicles a year in the U.S. by 2018. The VW brand sold 322,948 vehicles in the U.S. last year, down 7.6% from the year before.

But that goal always seemed out of reach to the company's top management in the U.S. Until recently, VW lacked products tailored for the U.S. market, especially SUVs, and development decisions moved slowly at the headquarters in Germany.

Mr. Diess, acknowledging that VW is far from its U.S. goal, declined to give volume targets.

When he took control at the VW brand just a few months before the diesel scandal was disclosed, VW had already begun to shift its U.S. strategy toward SUVs with the decision to expand its factory in Chattanooga, Tenn., to build the Atlas, a midsize SUV that seats seven and was launched in U.S. markets this year.

Volkswagen's only U.S. plant, Chattanooga operates at only about 50% capacity due to a sharp drop in demand for VW vehicles following the diesel revelations and a lack of competitive vehicles for the U.S. market.

Mr. Diess hopes the new SUVs and other planned models will help push the plant closer to full capacity by 2020.

"We intend to make further progress in fixed costs and material costs," he said.

VW's push into the U.S. market still faces hurdles. New-car sales in the U.S. declined sharply last month, indicating that the boom years are over in the North American market for cars and light trucks.

Mr. Diess said VW wasn't late to the party.

"The U.S. market is now at a high level and we are planning the biggest product offensive in our history," he said. "Even in a stable U.S. market we have the opportunity to take market share and grow."

Arndt Ellinghorst, an auto analyst at London-based brokerage Evercore ISI, said VW could be the industry's biggest turnaround story but executives needed to be more aggressive.

"Management should stop complaining," he wrote in a note to clients. "The fact that VW materially outspends each global manufacturer makes it hard for us to understand why everything is such a stretch at VW. Other car makers achieve more with less."

Rebuilding VW's U.S. business is part of a broader reorganization of the VW brand following the diesel crisis.

Mr. Diess said the VW brand had made huge strides in improving profitability, but warned of "significant risks" in the year ahead. He cited political uncertainty in the U.K. from Brexit and political upheaval in Turkey, as well as the weakening of the U.S. auto market.

"This year, then, cannot be taken for granted," he said. "It is now crucial that we resolutely stay the course."

Write to William Boston at william.boston@wsj.com

WOLFSBURG, Germany-- Volkswagen AG says its chronically unprofitable U.S. operation is about to turn a corner and start cashing in on the world's most valuable car market.

But the company has been down this road before.

Herbert Diess, a former BMW AG executive who runs Volkswagen's namesake brand, is banking on a new fleet of sport-utility vehicles and a new generation of electric cars targeting Tesla Inc. on its home turf to turn VW's fortunes around in America.

"The U.S. is too big a market for us to be a niche player," Mr. Diess told reporters at VW's headquarters on Friday, adding that VW expected to break even in the U.S. market by 2020, for the first time in years.

VW's push to gain market share in the U.S. comes as the company is gradually emerging from its diesel emissions-cheating scandal. In 2015, Volkswagen admitted to rigging millions of diesel vehicles to cheat on emissions tests. Nearly half a million cars were affected in the U.S., plunging the VW brand into a crisis.

VW's U.S. sales rose 10% in the three months to the end of March from a year earlier, following the launch of its Atlas and Tiguan SUVs. Mr. Diess said VW plans to launch two new models in the U.S. market every year, targeting sedans in 2018 and two more SUVs in both 2019 and 2020.

In 2020, Volkswagen will also begin production of its new family of pure electric vehicles. The first, a sedan modeled after the Golf, will go into production in Zwickau, eastern Germany, followed by new assembly facilities in China and the U.S.

"We have almost returned to precrisis levels within just 1 1/2 years," Mr. Diess said. "And this is all without the diesel model, which we have completely withdrawn from the U.S. market."

The Volkswagen group, whose lineup includes VW, Porsche, Audi, Bentley and Lamborghini, is the world's biggest auto maker by sales. But the VW brand's share of U.S. auto sales was just 1.9% at the end of April, according to data compiled by Motor Intelligence. Including the Audi and Porsche brands, the market share was 3.6%.

This isn't the first time a senior VW executive has pledged to achieve market share in the U.S. that is more in line with its status as the leading manufacturer in Europe and China.

Martin Winterkorn, who resigned as chief executive in the wake of the diesel crisis, predicted in 2014 that VW would sell a million vehicles a year in the U.S. by 2018. The VW brand sold 322,948 vehicles in the U.S. last year, down 7.6% from the year before.

But that goal always seemed out of reach to the company's top management in the U.S. Until recently, VW lacked products tailored for the U.S. market, especially SUVs, and development decisions moved slowly at the headquarters in Germany.

Mr. Diess, acknowledging that VW is far from its U.S. goal, declined to give volume targets.

When he took control at the VW brand just a few months before the diesel scandal was disclosed, VW had already begun to shift its U.S. strategy toward SUVs with the decision to expand its factory in Chattanooga, Tenn., to build the Atlas, a midsize SUV that seats seven and was launched in U.S. markets this year.

Volkswagen's only U.S. plant, Chattanooga operates at only about 50% capacity due to a sharp drop in demand for VW vehicles following the diesel revelations and a lack of competitive vehicles for the U.S. market.

Mr. Diess hopes the new SUVs and other planned models will help push the plant closer to full capacity by 2020.

"We intend to make further progress in fixed costs and material costs," he said.

VW's push into the U.S. market still faces hurdles. New-car sales in the U.S. declined sharply last month, indicating that the boom years are over in the North American market for cars and light trucks.

Mr. Diess said VW wasn't late to the party.

"The U.S. market is now at a high level and we are planning the biggest product offensive in our history," he said. "Even in a stable U.S. market we have the opportunity to take market share and grow."

Arndt Ellinghorst, an auto analyst at London-based brokerage Evercore ISI, said VW could be the industry's biggest turnaround story but executives needed to be more aggressive.

"Management should stop complaining," he wrote in a note to clients. "The fact that VW materially outspends each global manufacturer makes it hard for us to understand why everything is such a stretch at VW. Other car makers achieve more with less."

Rebuilding VW's U.S. business is part of a broader reorganization of the VW brand following the diesel crisis.

Mr. Diess said the VW brand had made huge strides in improving profitability, but warned of "significant risks" in the year ahead. He cited political uncertainty in the U.K. from Brexit and political upheaval in Turkey, as well as the weakening of the U.S. auto market.

"This year, then, cannot be taken for granted," he said. "It is now crucial that we resolutely stay the course."

Write to William Boston at william.boston@wsj.com

WOLFSBURG, Germany-- Volkswagen AG says its chronically unprofitable U.S. operation is about to turn a corner and start cashing in on the world's most valuable car market.

But the company has been down this road before.

Herbert Diess, a former BMW AG executive who runs Volkswagen's namesake brand, is banking on a new fleet of sport-utility vehicles and a new generation of electric cars targeting Tesla Inc. on its home turf to turn VW's fortunes around in America.

"The U.S. is too big a market for us to be a niche player," Mr. Diess told reporters at VW's headquarters on Friday, adding that VW expected to break even in the U.S. market by 2020, for the first time in years.

VW's push to gain market share in the U.S. comes as the company is gradually emerging from its diesel emissions-cheating scandal. In 2015, Volkswagen admitted to rigging millions of diesel vehicles to cheat on emissions tests. Nearly half a million cars were affected in the U.S., plunging the VW brand into a crisis.

VW's U.S. sales rose 10% in the three months to the end of March from a year earlier, following the launch of its Atlas and Tiguan SUVs. Mr. Diess said VW plans to launch two new models in the U.S. market every year, targeting sedans in 2018 and two more SUVs in both 2019 and 2020.

In 2020, Volkswagen will also begin production of its new family of pure electric vehicles. The first, a sedan modeled after the Golf, will go into production in Zwickau, eastern Germany, followed by new assembly facilities in China and the U.S.

"We have almost returned to precrisis levels within just 1 1/2 years," Mr. Diess said. "And this is all without the diesel model, which we have completely withdrawn from the U.S. market."

The Volkswagen group, whose lineup includes VW, Porsche, Audi, Bentley and Lamborghini, is the world's biggest auto maker by sales. But the VW brand's share of U.S. auto sales was just 1.9% at the end of April, according to data compiled by Motor Intelligence. Including the Audi and Porsche brands, the market share was 3.6%.

This isn't the first time a senior VW executive has pledged to achieve market share in the U.S. that is more in line with its status as the leading manufacturer in Europe and China.

Martin Winterkorn, who resigned as chief executive in the wake of the diesel crisis, predicted in 2014 that VW would sell a million vehicles a year in the U.S. by 2018. The VW brand sold 322,948 vehicles in the U.S. last year, down 7.6% from the year before.

But that goal always seemed out of reach to the company's top management in the U.S. Until recently, VW lacked products tailored for the U.S. market, especially SUVs, and development decisions moved slowly at the headquarters in Germany.

Mr. Diess, acknowledging that VW is far from its U.S. goal, declined to give volume targets.

When he took control at the VW brand just a few months before the diesel scandal was disclosed, VW had already begun to shift its U.S. strategy toward SUVs with the decision to expand its factory in Chattanooga, Tenn., to build the Atlas, a midsize SUV that seats seven and was launched in U.S. markets this year.

Volkswagen's only U.S. plant, Chattanooga operates at only about 50% capacity due to a sharp drop in demand for VW vehicles following the diesel revelations and a lack of competitive vehicles for the U.S. market.

Mr. Diess hopes the new SUVs and other planned models will help push the plant closer to full capacity by 2020.

"We intend to make further progress in fixed costs and material costs," he said.

VW's push into the U.S. market still faces hurdles. New-car sales in the U.S. declined sharply last month, indicating that the boom years are over in the North American market for cars and light trucks.

Mr. Diess said VW wasn't late to the party.

"The U.S. market is now at a high level and we are planning the biggest product offensive in our history," he said. "Even in a stable U.S. market we have the opportunity to take market share and grow."

Arndt Ellinghorst, an auto analyst at London-based brokerage Evercore ISI, said VW could be the industry's biggest turnaround story but executives needed to be more aggressive.

"Management should stop complaining," he wrote in a note to clients. "The fact that VW materially outspends each global manufacturer makes it hard for us to understand why everything is such a stretch at VW. Other car makers achieve more with less."

Rebuilding VW's U.S. business is part of a broader reorganization of the VW brand following the diesel crisis.

Mr. Diess said the VW brand had made huge strides in improving profitability, but warned of "significant risks" in the year ahead. He cited political uncertainty in the U.K. from Brexit and political upheaval in Turkey, as well as the weakening of the U.S. auto market.

"This year, then, cannot be taken for granted," he said. "It is now crucial that we resolutely stay the course."

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

May 07, 2017 10:41 ET (14:41 GMT)