VW sees lower price as key to US expansion

Lower prices are helping Volkswagen make progress toward the German automaker's plan to quadruple sales in the US market, its top US executive said Thursday. "We've got tremendous momentum in the market place," Jonathan Browning, chief executive officer of Volkswagen Group of America, told AFP. Sales for the first seven months of the year are outpacing the market with a 22 percent rise to nearly 150,000 vehicles and are expected to continue to grow as the German automaker expands its offerings. Lower base prices -- with the Passat, Golf, Beetle, and Jetta now starting at under $20,000 -- have dramatically expanded VW's reach. Last year's Passat only competed in about seven to eight percent of the midsized car segment, Browning said in an interview on the sidelines of an automotive conference in Traverse City, Michigan. "The new Passat with the price range and the product offerings will actually compete in more than 70 percent," he said. "It's a steep change in terms of the access to the market." While VW has received some criticism in the automotive press for the somewhat stripped-down base models, Browning insists that VW has not "diluted the heart of the brand." "The DNA is the same, the engineering is the same, the quality is the same," he said. "Even the entry level Jetta, if you drive that on the highway enthusiastically, it's a vehicle that feels planted on the road and has all those qualities that make a VW a VW." And since VW still has plenty to offer passionate customers with the means to pay a premium it has managed to keep its median transaction price "essentially unchanged," he said. VW aims to be the world's leading automaker by 2018 and to expand its global sales to 10 million vehicles annually. The United States figures prominently in those plans, with sales goals of 800,000 VWs a year -- up from 213,000 in 2010 -- and 200,000 Audis, more than double the 83,000 sold last year. "Selectively, we may see some opportunities for new products like the Golf R that really reinforces the qualities of the brand," Browning said. "The first job is to really go deeper into the segments." A major component of VW's push is a $4 billion investment in US products, which includes the construction of a one billion dollar plant in Tennessee that opened in May with the capacity to build up to 150,000 vehicles. VW has also revamped its marketing -- including a new ad campaign which made a huge splash during the Superbowl -- and is working to improve its customer service and overcome persistent quality problems, Browning said. W expanded rapidly in the United States in the 1960s, reaching five percent market share before it was overtaken by Japanese competitors in the 1970s. By 1993, VW's share had sunk to a low of 0.44 percent. "They had a steady decline in the face of Japanese competition because the Japanese got a reputation for bullet-proof quality and reliability. They just became automatic buys," said Bill Visnic, an analyst with automotive website Edmunds.com. "If your choice was a (VW) Passat or a (Honda) accord, it was a no-brainer. They were going with an ultra reliable Japanese car that was $2,000 cheaper than the equivalent VW." VW also saw its sales decline because of quality and reliability problems and a failure to design vehicles targeted to the US market, Visnic said. Browning blames VW's decline on a failure to "adjust to market realities." "We lost touch with our American customers," he told the conference hosted by the Center for Automotive Research. But the automaker has refocused its approach to the US market and its share jumped by a full point in the past three economically turbulent years, reaching 3.04 percent in 2010 according to Ward's Auto. "It will be a commitment to the US customer -- to the total purchase and ownership experience -- that will drive the change in course for VW here in the US," Browning said. "We will create prosperity amid uncertainty with a clear vision -- one that offers more customers a great product lineup, and a commitment to safety, quality and German engineering."