New Volkswagen CEO Steering Iconic Brand Back to Being Value Leader

Bernhard Says VW North America is "A Company in Crisis"

Finally theres someone with good old fashioned common sense running Volkswagen. Not that Herr Dr. Bernd Pischetsrieder, chairman of the board of management of Volkswagen AG doesnt have his act together, he most obviously does as he managed to lure Wolfgang Bernhard away from DaimlerChrysler and placed him in the top position over the iconic VW brand, but ex-Volkswagen Chairman Ferdinand Piëch truly didnt understand VWs core value proposition at all.

Rather than allow Volkswagen to continue its leadership as the premium make among entry-level brands, a position that it has earned by always offering slightly sportier, more solid feeling cars with better interior quality than its Asian and American rivals, Piëch had a "vision" of Volkswagen as a premium brand, right up there with BMW, Mercedes-Benz and, ironically, Audi. The result of his vision is the Phaeton luxury sedan, one of the most impressive vehicles in the full-size premium four-door market segment, unfortunately saddled with a badge that most consumers associate with thrift and economy.

To be fair to Piëch, VW AGs broad European nameplate portfolio, which included Spains SEAT and the Czech Republics Skoda brands situated below Volkswagen, was the main reason VW was chosen to move up-market. But the move has proven nearly fatal in North America, with Volkswagen having run up losses of approximately $1.24 billion in North America, mostly in the U.S. - the brand does slightly better in Canada due to that countrys penchant for smaller cars and a stronger following of diesel buyers.

Only last month, Volkswagen warned analysts that it didnt expect to achieve any profits in North America until 2007, due to low revenues and extremely strong competition on new cars prices from General Motors, Ford, and Chrysler Group.

"Its a company in crisis," commented Bernhard. "People need to understand that. They have to change."

What the automaker failed to mention was that Volkswagen was also in crisis because it continues to lose market share to Japanese competition as well as domestic rivals, plus its confusing marketing message to consumers, targeting economical compact buyers on the one hand and wealthy super-sedan customers on the other, have caused some potential owners to believe that Volkswagen cars are too expensive, or for that matter not prestigious enough.

Some other automakers have tried to move up-market too quickly, with equal results. Chrysler, for instance, brought its new Pacifica crossover SUV to market in one fully-loaded trim level for a price that was much more than most consumers were prepared to pay for a product from the "blue ribbon" brand. And its not that the vehicle itself didnt deserve to fetch its original $35K price point, as it offered elegant styling, excellent perceived quality, more luxury and convenience features for the dollar than any rivals at the time, and the list goes on, its just that the brand, which was selling Neons up until the previous year, wasnt prestigious enough - the 300C, and to some extent the Pacifica over time, have helped to improve Chryslers image, but dont expect its brand managers to once again attempt to take it where it doesnt belong anytime soon.

Volkswagen, under Pischetsrieder and Bernhards leadership, has woken up to the realization that it shouldnt be playing in the premier league, a sector that its Audi brand still struggles to compete in. Rather than introduce its previously announced BMW 5-Series/M-B E-Class competitor to a disinterested public, and incur more humiliation and further losses, Bernhard plans to introduce between five and ten new models over the next five years, or so he said at a news conference during the Frankfurt auto show on Monday. Although he couldnt be vaguer about how many vehicles his company would introduce over this time period, at least Bernhard was clear on the trajectory his company needs to target and, as importantly, realizes the automotive press and potential Volkswagen customers that regularly tune in needed to hear that someone at the helm is finally talking sense.

Bernhard said that the five to ten new vehicles wouldnt be replacements for existing Volkswagen models, but instead would be all-new products targeting VWs traditional customer base, with "good value and quality engineering" being the prime directive.

"Volkswagen will grow strong," commented Bernhard during his introduction of the Eos retractable hardtop. "We know where our roots like, in the heart of the value segment. High quality and good value are the keys to doing that."

Bernhard pointed to the new Eos, a four-seat convertible that goes on sale in Europe early next spring and throughout North America in May, as an example of VWs value oriented quality.

The Eos is to have a base price of 25,950 euros, which equals approximately $31,900 at current exchange rates. 

Of course, most North American Volkswagen dealers are looking forward to the Eos, but no doubt would rather have more competitive mainstream products to thwart Japanese rivals. Totally redesigned Jetta and Passat models have just become available in North America, but the popular wagon version of the former will have to wait for an indefinite period of time.

The Jetta has received lukewarm reviews, mostly due to its bland styling compared to the much-loved outgoing model, but the cars advanced engineering is impressive to most that have driven it. The Passat is getting more positive reviews all-round.

But VWs North American divisions need new Golf and GTI models to spur on sales of core buyers, and possibly a new smaller entry-level vehicle, in order to lure younger, first-time buyers into the family.

Also, while the luxurious Touareg midsize SUV has sold well, VW is in desperate need of a compact sport ute, a market segment that is growing in popularity at about the same rate as the price of gasoline. The new Golf-based model, dubbed Beduin, will not be available in the immediate future, but is no doubt one of the all-new vehicles Bernhard is referring to.

But no matter the current state of affairs at Volkswagen, sensible leadership looks to be turning the brand back to its fundamental roots, and new more competitively priced models will eventually find their way to your local VW dealership.

In the meantime, if the powers that be can get a handle on the brands glaring quality issues, as well as find ways to make the dealer group take better care of its customers so that it doesnt continue showing up near the bottom of the heap in owner satisfaction studies, then when new products arrive VW might just be competitive after all. Bernhard has his work cut out for him.

But more specifically Adrian Hallmark, Volkswagen of Americas new 43 year old CEO, has got a lot of work cut out for him when he takes over operations on October 1, replacing Len Hunt who replaces Hallmark as director of sales for Bentley.

The brand seems to be doing better in Europe, where Pischetsrieder said VW AG is targeting more than five-million vehicles through the rest 2005 worldwide, including cars, vans and SUVs from its Audi, Skoda and SEAT brands. While appearing positive, he cautioned those in the Frankfurt crowd that such was "no grounds for euphoria."