VW Likely to Delay Ambitious U.S. Sales Targets

Volkswagen’s ambitious growth plans for the U.S. market are likely to be delayed – but are still within long-term reach, according to the maker’s top U.S. executive.

The German maker had set itself a goal of selling 800,000 vehicles a year in the U.S. under the flagship VW brand by 2018, while also sharply boosting sales of the Audi luxury brand. But while Volkswagen has enjoyed a significant increase in volume since the plan was first announced, growth has slowed in recent years, sales actually dipping slightly in 2013.

And with demand dipping even further for the first months of this year, meeting the 800,000 target by 2018 now seems out of the question, Michael Horn, the 25-year Volkswagen veteran who recently took over U.S. operations, told TheDetroitBureau.com.

“For now, we have to have realistic targets,” Horn said, during an interview in San Francisco coinciding with VW’s launch of the all-new, seventh-generation Golf hatchback. And hitting the sales target by 2018, he acknowledged, “is a challenge.”

That said, Horn stressed, “the vision is right… long-term. But timing is the huge challenge.”

Horn made clear he was not ready to issue a formal statement revising the bold plan first outlined by former Volkswagen Group of America CEO Stefan Jacoby in 2008. But with the target date fast approaching and VW only halfway to its sales goal, there seems little doubt the maker will have to issue a public revision in the near-term, he confirmed.

“It’s only a few years away,” with virtually no chance of making it, agreed Stephanie Brinley, a senior analyst with IHS Automotive, who described the original sales target as “hubris.”

In the heyday of the original Beetle, Volkswagen was the biggest import nameplate in the American market. But as the Bug aged and the twin oil shocks of the 1970s got American motorists focused on fuel economy, the maker began losing ground to Japanese competitors like Toyota, Honda and Nissan. Quality problems made the situation only worse. And after closing its original U.S. assembly plant in Westmoreland, Pennsylvania, three decades ago, industry analysts suggested VW was losing interest in the American market.

By the early 1990s, annual sales bottomed out at around 54,000, and VW gave serious thought to abandoning the American market entirely, following such European brands as Renault, Peugeot and Fiat. VW ultimately chose to stick it out but sales rebounded only gradually and have, ever since, been on a roller-coaster ride.

Under former CEO Jacoby, demand began to improve, giving VW hope it could become a serious player in the U.S. again. From barely 200,000 vehicles a year, sales hit the critical 400,000 mark three years ago, reaching a level Volkswagen hadn’t seen since the original Beetle was at its peak.

Credit went to not just some updated products, but to models specifically tuned to the American market. The 2011 launch of on all-new Passat seemed poised to give the maker critical momentum, especially as it launched production of the big sedan at a new assembly plant in Chattanooga, Tennessee, VW’s first factory in the U.S. since the Westmoreland facility was shuttered.

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But there were major gaps in the line-up, Horn acknowledged. In particular, the maker needed to target both the midsize and compact SUV segments – two of the largest niches in the American market. But plans have been repeatedly delayed, despite expectations the production plans for the midsize CrossBlue utility vehicle would be revealed in 2013.

Horn hints that the details should be announced shortly, and production is expected to be handled by the Chattanooga plant – which would undergo a significant expansion to handle CrossBlue and possibly other future models, such as a second SUV based on a stretched version of the current Tiguan.

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The delay in launching those new utes, as well as the fact that the American Golf debut lags a year behind Europe, surprises some observers. Without a full product portfolio, said analyst Brinley, there’s been little way for VW to maintain its pace of growth.

So, why set an admittedly aggressive plan only to short-circuit it by delaying new product? Horn stressed that VW wanted to ensure the production version of its well-received CrossBlue Concept was properly tailored to the market.

“We’ll succeed only if we build the cars people want here,” he emphasized.

But several well-placed VW sources suggested that was only part of the problem. The maker has been ambitiously pushing to grow its presence not only in the U.S. but a variety of other markets, notably including China, which is now the world’s largest automotive market.

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“China took precedent,” said one insider, noting that cash originally targeted at the U.S. was diverted – effectively. VW last year nudged past archrival General Motors to become the largest automaker in China. And that could pay off on a broader scale. VW also passed GM in global sales and is now chasing close behind Toyota, which it hopes to leapfrog before decade’s end.

But VW officials know that to firmly take worldwide sales leadership they cannot again ignore the U.S. market. So, expect to see them shift resources back to the States over the next several years. The 2018 goal may get pushed back, but it won’t be abandoned, Horn underscores.