By William Boston
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which we have completely withdrawn from the U.S. market."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 07:27 ET (11:27 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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