Showroom traffic rises in U.S. as some motorists stay with brand after scandal

By Adrienne Roberts 

Volkswagen AG has bought back or terminated the leases of 125,000 diesel vehicles from owners affected by the company's emissions-cheating scheme, helping spur showroom traffic in recent months for hundreds of U.S. dealers who weathered brutal sales declines in the wake of the scandal.

The company kicked off a buyback program in November, leading to a 20.7% sales increase for its namesake VW brand in the three-month period ending in January compared to the same period a year earlier. An estimated 20% to 40% of those selling their vehicles back to the company opted to get a new Volkswagen, according to a survey of dealers.

The retention rates far trail typical loyalty rates -- but the additional sales are a shot in the arm for dealers awaiting products that are designed to better appeal to U.S. buyers.

Volkswagen could experience a tailwind for the foreseeable future, as the program extends through 2018 and only about one-fifth of eligible owners have taken advantage. Other auto makers, including Subaru Corp., say they are also benefiting as former VW owners search out a new brand.

The German auto giant's sales took a hit in the year following the September disclosure that hundreds of thousands of diesel-powered cars were fitted with software that cheated on emissions tests. Volkswagen has committed billions of dollars to settling with various U.S. agencies and programs aiming at compensating dealers and buyers.

Monthly sales slipped an average of 12.6% a month in the 13 months leading up to the buyback program's start in November. LMC Automotive analyst Jeff Schuster said Volkswagen's loyalty rate was a meager 37% last year -- the broader industry typically reports more than 50% of owners return to the brand.

Jason Kuhn, chairman of Kuhn Automotive Group with multiple dealerships in Florida, said his Volkswagen dealerships have processed about 150 buybacks. "I think that the program compensation was so lucrative from the consumer standpoint," Mr. Kuhn said. "For consumers that love the brand, they think that (the buyback program is) a double win."

Anne Curry, a VW diesel customer in Tacoma, Wash., participated in the buyback program and traded in a diesel car that she loved because "the buyback was too good to pass up." The 48-year-old realtor traded in her 2014 Volkswagen Passat and bought an Audi, which is also made by Volkswagen, with $11,000 she received through the buyback program.

While the Audi was used, she had leased a brand-new gasoline-powered Volkswagen Jetta for her daughter to use just prior to acquiring the Audi. She said the buyback process took her less than 20 minutes. "The process made me even more loyal to the brand," Ms. Curry said.

Not everyone is pleased.

Rusty Turner, a 52-year-old living near Dallas, owns two diesel Volkswagens affected by the emissions scheme. He's had to schedule multiple appointments with the VW representative due to confusion about the Jetta's mileage and has yet to receive compensation for that car.

"I love the dealership, the car and Volkswagen, but I won't be buying any more Volkswagen's after going through the buyback process," Mr. Turner said.

Dave Sullivan, an analyst at AutoPacific Inc., said Mazda Motor Corp. and Subaru are hot with ex-Volkswagen owners, according to the Tustin, Calif., firm's research. Toyota Motor Corp.'s Prius and the diesel-powered Jaguar XE sedan are also popular picks.

A Subaru spokesman said recent buyer survey data "indicates an uptick among VW replacers -- especially among those who have never owned a Subaru in the past." He said the company's rugged Outback is the leading model they purchase.

Matthew Welch, general manager of a Volkswagen dealership near Seattle where Ms. Curry shops said more than 40% of customers at his dealership participating in the program have come back to the brand, with the majority purchasing the new 2017 all-wheel-drive Golf Alltrack, a vehicle that helped to reignite dealers and consumers' excitement for the brand. Dealers like Messrs. Welch and Kuhn are also eager for the launch of the Atlas, Volkswagen's seven-passenger sport-utility vehicle aimed at U.S. buyers who prefer heftier cars amid low gas prices.

Volkswagen declined to furnish specific data on loyalty rates.

Mr. Kuhn, however, said most of the customers would want to keep their car because "there's such a shortage of diesel (vehicles) in the market (and) there's a lot of uncertainty about" when certain fixes for some of the affected diesels will be available.

But with few diesel options, Mr. Sullivan said he expects some diesel-enthusiasts are holding on to their cars and waiting for more diesels to come onto the market. Mr. Schuster said that because terms of the buyback are frozen until late next year, the bulk of consumers will wait until 2018 to initiate the buyback.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com

(END) Dow Jones Newswires

February 23, 2017 02:48 ET (07:48 GMT)

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