2011 Volkswagen Jetta
Volkswagen AG - the sprawling automotive group with divisions as diverse as Bentley in Britain, Lamborghini in Italy and Porsche in Germany - has grand plans for the world and decidedly modest ones for Canada. We are, as often is the case, taking a back seat to bigger interests.
To be fair, John White, VW Group Canada president and CEO, says Canada does have a voice at the table where VW's North American plans are constantly and continually hashed out. (Remember, this is a German company; planning and producing a plan is central to everything.) But the voice of the United States booms much louder and it's driving VW's product plans.
That said, VW Canada is about to launch the most important car here since the New Beetle. The sixth-generation 2011 Jetta, starting at $15,875, is moving down market to take on other compacts like the Toyota Corollas, Mazda3s and Honda Civics of the world - to name the three most popular cars in Canada.
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White thinks the new Jetta, which is flip-flopping its place in VW's lineup with the Golf (itself reinvented for 2010), will be worth 24,000 in sales during a full calendar year. Toyota, Mazda and Honda will each sell twice that number of Corollas, Mazda3s and Civics. But given that VW Canada is forecasting sales this year of about 44,000 cars and 50,000 in 2011, the 2011 Jetta is obviously critical.
But frankly, if Canada were a bigger, more important market, White would also be looking at offering a version of the subcompact VW Polo. He's not. And he quickly dashes any speculation that the Polo might come to Canada in the next two years. It's impossible for VW to price the European-built Polo low enough in Canada to compete with $10,000 Hyundai Accents, $12,000 Toyota Yarises, and sub-$13,000 Ford Fiestas.
VW Canada could also use some sort of compact van along the lines of the Mazda5. A crossover between the Tiguan compact and Touareg full-size SUV would help too - something to go against, say, the Toyota Venza. And, of course, a sedan to take on the Ford Fusion, Toyota Camry, Hyundai Sonata, Honda Accord and the like would be a big boost, too. The undersized and arguably over-priced Passat just does not cut it as a mainstream, mid-size sedan.
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So VW Canada is moving carefully and cautiously ahead with its growth plans. Some day VW and its luxury arm, Audi, might approach 80,000-100,000 in Canadian sales (Audi did less than 10,000 in sales last year).
"But I need a couple of additional products" to break through 100,000, says White, a Montreal native and devoted Habs fan (he still has season tickets). White, an avid runner, is not a plodder in business, but he does steer a course for VW Canada that is all about under-promising and over-delivering. Not surprisingly, in everything he's always careful to measure the tone coming from VW's German headquarters in Wolfsburg.
By contrast, the big VW boss, Martin Winterkorn, has been anything but shy about VW's goal of becoming the world's biggest auto maker by sales, if not by profitability.
"We want to take Volkswagen to the top of the industry by 2018," Winterkorn told reporters in San Francisco for the launch of the new Jetta. "We know that the United States is one of our main destinations on our way to the top."
Canada, meanwhile, is not unimportant; it's just that the U.S. market holds so much more potential and promise. Canadians may one day deliver 100,000 in combined VW and Audi sales; but the U.S is something else entirely. Winterkorn again said VW's goal is to sell 800,000 VW-brand vehicles and 200,000 Audis annually in the U.S. by 2018. Those are big numbers for a car company with just over six million vehicle sales last year around the world.
The Jetta alone in the U.S. should deliver 150,000 in sales a year. An all-new car designed specifically for American drivers, the 2011 Jetta will go on sale later this year. A hybrid version will follow in 2012 and we'll also get that in Canada. We won't get the Touareg Hybrid, however.
"The Jetta not only stands for the new self-confidence of Volkswagen. It also marks the beginning of a promising new chapter for Volkswagen in the United States," Winterkorn said. "North America will always be one of the largest and most important car markets."
Actually, for much of the past few decades, North America has not at all been a huge priority within the VW Group. In 1970, VW sales in North America exceeded 570,000 vehicles and it's been pretty much a downward slide ever since. The 1980s saw VW close its U.S. assembly plant in Pennsylvania (1988) - and the absolute nadir came in the early 1990s when VW sold barely 40,000 cars in the U.S. and around 6,000 in Canada. Last year, the company sold about 213,000 VW brand vehicles in the U.S. and just over 40,000 in Canada.
During the 1990s, VW was washed away by a tsunami of Japanese auto makers who armed themselves with market data and then used it to develop and build - largely in new North American plants - vehicles specifically aimed at drivers on this continent. During the last decade, VW clawed back, riding the wave of outsized consumer spending largely driven by tech and real estate bubbles.
But there remained the same old problem: VW continued to develop cars for Europe and then try to sell them as "premium" offerings to American and Canadian buyers. Meanwhile, a lingering reputation for spotty quality has and continues to stymie VW's growth plans. And then there are the currency issues - the swings in the value of dollars (Canadian and U.S.) and euros. The core issue is that VW never really committed to a dedicated North American strategy along the lines of, say, Honda and Toyota.
"I am fully aware that Volkswagen was too cautious for too long in North America," Winterkorn said.
Caution now has been thrown to the wind. VW is in the final stages of finishing a $1-billion (U.S.) plant in Chattanooga, Tenn., and in it the company will build a new mid-size car aimed specifically at American customers. The new car, which may or may not be called the Passat, goes on sale later next year. A raft of other new models will join VW's North American lineup, too.
While the 2011 Jetta is an important part of that plan - and absolutely critical for Canada - the U.S. sales arm sees the upcoming family sedan as far more important. This car, say VW officials, will be roomy and priced for Americans (and Canadians). So look for it to be at least as big as the new 2011 Sonata and sticker below $23,000 to start. After that launch, various sources say VW could expand its U.S. lineup from 10 cars today to 14 in five years.
Canadians will see most of them for sale in our market, including an all-new Touareg coming late this year. Next spring, look for a high-performance Jetta GLI 2.0 T and a freshened Eos convertible. The Chattoonoga-built mid-size car is slated for September-October, 2011, followed by a face-lifted Tiguan, then a new Beetle late next year.
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The product strategy makes complete sense, really, but VW faces a range of issues on the path to success. First among them, VW must convince certain skeptical buyers here and down south that its cars are worth buying.
In J.D. Power & Associates' latest Initial Quality Study (IQS), which ranks cars in the first three months of ownership, VW came in third from the bottom, with only Mitsubishi and Land Rover scoring lower. It was a near-identical story in J.D. Power's 2010 three-year Vehicle Dependability Study (VDS): VW ranked third from the bottom, with Land Rover dead last and Suzuki just above. White and others at VW insist that they are on track to improve quality substantially and for the long term.
Meanwhile, VW's grand global push comes at a time when key rivals are vulnerable. Toyota and General Motors are retrenching and reinventing themselves for various and different reasons and Honda seems immensely vulnerable, what with the unsuccessful Pilot SUV floundering, the Insight hybrid a non-seller in North America and plans to re-engineer and re-style the Civic delayed until next year.
VW's strategy both in North America and abroad does somewhat look like the third coming of GM and Toyota - both of which have stumbled at being No. 1 in the world. VW, however, insists that it's different - that despite most of its profits coming from the Audi premium brand, the overall structure of the company steers outcome in a positive direction. The essential element is that VW is more decentralized than many auto makers; its various brands - Skoda, Bentley, SEAT, Lamborghini, Porsche and others - must meet their own profit and sales targets.
Perhaps VW's push will work. What's certain is that we'll know within 18-24 months.
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