Audi of America CEO Fired for Criticism of Poor Selling VW Phaeton

Was Mees the Only VW AG CEO Talking Sense?

There are obvious mistakes made in the automotive business, yet it seems that those high in the ivory towers of automaker

boardrooms rarely admit to making any. And woe be unto those executives who make the horrific mistake of actually admitting that errors of judgment could have been made.

Outside of Volkswagen, and Im sure within its ranks too, there wasnt a car executive, automotive journalist or auto enthusiast in the world that didnt question why the economy brand was entering into the rarified $100K luxury sedan market when it initially announced its V8- and W12-powered Phaeton (see automotive news archive for Nov 7, 2003: VW Bullish on North American Phaeton Sales). After all, the German automaker already owned as many luxury brands as it did economy, including Audi, Bentley, Lamborghini and Bugatti, the former of which would be cannibalized if the Phaeton saw the light of day.

But what goes around seems to come around in the VW family, as the Volkswagen brand was already being parasitically eaten away by VW-owned European nameplates Skoda and Seat, both offering badge-engineered versions of less expensive Volkswagen cars with the same or more features for less money.

Most analysts shake their heads in disbelief of what parent company Volkswagen AG, was, and still is attempting to accomplish, that is if they can make any sense of it. The Phaeton has been a high-level failure from a sales and publicity standpoint, and despite this the brand is still considering building a midsize BMW 5-Series fighter codenamed C1 (see automotive news archives for Aug 29, 2004: Industry Report: Turmoil in Wolfsburg as Volkswagens C1 Midsize Luxury Car Delayed). Once again, most auto analysts are expecting the midsize VW luxury model to merely eat into Audi A6 sales, leaving BMW alone to achieve one record breaking sales success after another.

One executive that couldnt keep towing the company line while seeing his profits sabotaged from within was Axel Mees, axed from is job as head of Audi of America Inc. yesterday. Stating that expanding the Volkswagen brand into the luxury segment may have been a mistake, Mees made the mistake of voicing what many other VW executives are most likely thinking.

If Volkswagen wasnt currently suffering from debilitating sales in North America and abroad (see automotive news archive for Feb 19, 2004: Volkswagens Fifth-Generation Golf is Underperforming in Europe), plus troubling reliability problems that have plunged the brand that was once the poster child of automotive dependability down to 32nd out of 37 nameplates in J. D. Powers and Associates 2004 Vehicle Dependability Study (VDS), and second to last place in the 2004 Initial Quality Study (IQS), then a simple indulgence such as the Phaeton would hardly be a big deal. But ex-CEO Ferdinand Piëch, while initially turning the company around in the early 90s, allowed quality to take a back seat while grand plans for pushing the Volkswagen brand upmarket were set, and arguably the money that could have been used to improve the reliability of VW and Audi vehicles was spent in developing a vehicle that would never do more than fill a small niche market.

What happened to Piëchs pet project when it hit the real world is now a lesson in history unfolding in modern day. To call the Phaeton a disappointment would be an understatement, with sales this year in the U.S. totaling a meager 1,433 units from January through October. No wonder those affected within VW are disgruntled. Octobers sales of 305 units, if amortized to the end of year would mean a total of 2,000 Phaetons may be all that is attainable, much lower than VW had initially intended.

How many Phaetons did the automaker expect to be able to sell? Looking back to November 2003 when VW AG Chief Executive Bernd Pischetsrieder was feeling bullish about the models prospects in North America, stating in a German television broadcast, "What we can say is that next year we expect (U.S.) sales of the long version of the Phaeton of about 3,000 to 3,500", and continuing on with sales targets of approximately 15,000 Phaetons globally. That target has since been lowered to 2,500 units, which as stated above looks unlikely to be met.

Pischetsrieder himself stated that Volkswagen may have missed the target with regards to the Phaetons design, styling it too conservatively to make a significant mark on the minds of the upper crust expected to purchase it (see automotive news archives for Jul 7, 2004: Volkswagen CEO Pischetsrieder Says Phaeton Styling was a Mistake). But while the automakers chief executive only admitted to mistakes in styling, a bolder Axel Mees said, "I think Volkswagen underestimated the weakness of their brand in the luxury segment," to reporters attending the media launch of the Audi A6 sedan in San Francisco. He added, "I think they realized the Phaeton... was a step too fast into a direction they wanted to go."

Such words would have been seen as high treason in VWs tightlipped executive squad, despite the fact that he was preaching to the choir, so to speak, with most journalists present having most likely reported on the same subject with a similar leaning prior to Mees comments.

The Audi of America CEO added, "VW overall isnt ready to offer successfully cars in that price range, whatever they do." He continued, "It can be the best car (but) I still will not buy it because it has a VW logo."

Mees said that executives in charge of the brand during the Phaetons development, ex-CEO Ferdinand Piëch being the most notorious, werent looking at all aspects of making the Phaeton a success in an increasingly competitive market. Mees added that the VW leadership was obsessed with the Phaetons engineering, and the "need" to develop out a class leading luxury flagship for the VW brand.

"He (Piëch) wanted to prove he could build a good car. He didnt look at the marketing aspect, the brand aspect," Mees added.

"They overestimated the power of the Volkswagen brand," Mees stated. Like teaching a penguin to fly, VWs brand image was and still is associated to economy and the odd entry-luxury vehicle, such as the Passat. That said, the W8 powered Passat that pushed the brand upmarket has failed miserably, causing the automaker to pull it from production for 2005. No similar announcement for the Phaeton has been made, and none is expected especially after this weeks events.

Mees also said that VW would likely shift return to its roots of building and selling high-quality, affordable cars, and then leave the luxury side of the business to the Audi brand.

"The VW model range will be gradually going down (range)," he stated. Whether VW will then allow Audi to take up this slack "is too early to tell," he continued.

In the end Mees was ousted from his top Audi posting for admitting to what so many VW outsiders have been saying in recent months, but doing so by someone within the German automakers ranks was obviously looked down upon by VW brass.

Firing the Audi CEO will without doubt cause problems within the brands U.S. division, which wont be seen as an intelligent move by analysts. Once again, it seems that ego is driving Volkswagen AG, and in the current competitive market such actions could prove detrimental to its future success.