Team-BHP - VW to target 1 million sales in America?

In the Nov 5, 2007 issue of Automotive News, I came across an article which is the subject of this thread. It also had a opinion on VW's goals which make for good reading. Here I have posted the article:

Volkswagen group says that by 2018 it will sell 1 million Audis and VWs a year in the United States.

Here are five reasons why that won't happen.

1. Exchange rates. VW lost $828 million in the US in 2006. Then the exchange rate got worse. Obviously, to meet its goal, VW needs more North American production than just one plant in Mexico. Executives recently have acknowledged that the German automaker is considering adding a US plant. But it had a US plant once and had to close it back in 1988.

The automakers that sell Europe's luxury brands struggled to export profitably to the United States at $1.25 to the euro - and they have reasonable margins to work with. How can VW do it at $ 1.44?

Audi's higher margins give it more room to absorb weak-dollar losses, but its US fleet remains 100 percent imported. The VW brand has less wiggle room and additional problems.

2. Quality. There is a disconnect between Europe and the United States. In Europe, the VW brand charges a premium over other mass-market brands because of its perceived high quality. In the United States, it keeps finishing in the bottom handful of 30-some brands in the J.D. Power and Associates Initial Quality Study.

Despite the dismal quality showing, VW insists that its US buyers `should also pay extra' for the `privilege' of driving a VW. Too many Americans read quality reports for this strategy to work.

3. Image. VW wants to be called a luxury brand in the United States. But its cars don't say luxury, don't feel like luxury. Its Europe-sized cars are pretty small in the US. VW's one US-sized upscale car, the Phaeton, flopped and was withdrawn from the US lineup precisely because Americans (like most Europeans) rejected paying big bucks for a car with a VW badge on its nose.

Does the brand that founded its US image on two decades of nothing but Beetles really think Americans will suddenly see Polos as luxury cars? Do VW execs imagine buyers telling themselves, "Man, I almost bought a BMW 3 series. Thank goodness I saw that Polo in time!"

4. Competition. The United States is a mature market. To capture 1 million sales, VW must take about 671,000 buyers a year from other brands. Where will VW steal all that market share? VW executives have resolved to target Toyota Motor Corp. globally. But if their goal is to beat up a Japanese automaker that has several plants in North America and more on the way and a brand - Toyota - that sells more cars in the US than Chevrolet or Ford, those VW guys ought to start thinking about at least one US plant for product. All the other Asian automakers that are logical VW targets also have well-established US plants to churn out cars with a cheap-currency edge.

5. Attitude. Behind all the cute VW ads, there has always been a hint that executives back in VW headquarters knew what American motorists should drive. But things have changed. The Beetle was the antithesis of the huge Detroit cars. It was nimble. It was fun. But it was also amongst the least reliable cars. It struggled to cope with America. Its 6-volt electrical system kept failing. With the right foot nailed to the floor, it would reach the top speed of 72 mph on the Interstate, and still everybody passed it. Then, weary of an American lifestyle, the engine blew up. Every year, VW made dozens of tiny changes to the Beetle but always expected that Americans should adjust to the car, not the car adjust to the market.

Later, that German stubbornness almost killed Audi during the "unintended acceleration" flap. The cars were not faulty, just set up for a high-performance driving style. But Audi's unyielding insistence that it was right sounded like "Our U.S. customers are too stupid to drive our cars properly."

Recently, VW group CEO Martin Winterkorn acknowledged that VW had tried to force Americans to accept Europe-sized cars and hinted at a change of heart. He may be sincere. But US press and consumers have heard the same thing from many other VW executives over the years.

VW group seems to have forgotten that its U.S. sales peaked in 1970 at 569,182 units and stood at 329,112 last year.

VW was the first successful importer in the United States but became an also-ran. Forget a million. How about regaining lost ground first?

Another article about another manufacturer, this time Hyundai, planning to sell 1 million in the US. Sounds similar to what is happening in India.

A funny thing happened to Hyundai on the way to selling 1 million units a year in the United States. The feisty Korean carmaker hit a brick wall.The grand plan to get to a million by 2010? No chance.

This year's sales goal is 512,000, slashed from 555,000. But dealers are behind last year's pace, when full-year sales were 455,520. That's a long way from a million.

Now Hyundai's overreaching bosses in Seoul have gone from pushy to panicky.Korea's reshuffling of managers at Hyundai Motor America is getting monotonous. The revolving door has led to a chaotic strategy that has dealers dazed and confused. "It will be very hard to get a person to come work with them," said Bill Underriner, president of Underriner Motors of Billings, Mont. "The team is always changing." U.S. execs keep changing tactics, with moves that smack of anxiety and indecision. Hyundai's latest reversal is to bring back dealer ad associations -just nine months after getting rid of them. Hyundai also plans to increase ad spending dramatically in 2008. Sales chief Dave Zuchowski says Hyundai will run commercials during the Super Bowl for the first time next year, at a cost of as much as $2.7 million for a 30-second spot.

The bottom line for Hyundai: The United States is not as easy a market as it once looked. In 2003, with its annual sales around 400,000, Hyundai took dead aim at a million by 2010, after a growth spiral fueled by a 10-year warranty. But sales stalled two years ago, and Hyundai began firing and changing managers and reworking strategies.

COO Steve Wilhite, who was hired from Nissan in August 2006, quit last month. Hyundai Motor America CEO Ok Suk Koh will handle the company's sales and marketing until a replacement is named. Wilhite had replaced Bob Cosmai, who was ousted in January 2006. Cosmai had been head of sales under Fin O'Neill, who had held the job from 1998 to 2003, when he left to head Mitsubishi Motors North America Inc. O'Neill's two predecessors, Robert Parker and Doug Mazza, had been replaced. Bill Wallace, owner of Wallace Hyundai in Stuart, FIa. says "It gives you an uncomfortable feeling in your gut. The Koreans are calling the shots. They're impatient. It's discouraging. They're not in touch."

Key U.S. executives have been swept out for not meeting sales targets. In February 2007, Zuchowski, an exMazda executive, replaced Mark Barnes as head of sales, and Joel Ewanick replaced Michelle Cervantez as head of marketing.Ewanick was lured from Hyundai's ad agency, Richards Group, and his first act was to fire his previous employer.

Wilhite was hamstrung from the beginning. No sooner had he arrived than Korean management saddled him with an impossible goal: Sell 555,000 units this year.As late as April, Dong Jin Kirn, CEO of Hyundai Motor Co. in Seoul, said he still thought Wilhite could hit the goal. When Wilhite quit in September 2007, the sales target was cut. At the National Automobile Dealers Association convention in Las Vegas in February, dealers complained about lack of continuity in top management.

Hyundai sold 455,520 vehicles in 2006, almost exactly the same as the year before. Yet the Korean bosses stuck to their plan to reach 555,000 units this year. In September 2007, they cut that target to 512,000. But even 512,000 is ambitious. Through September 2007, Hyundai dealers sold 358,407 units, down 0.2 percent from the same period last year.

Another interesting news about the US car (not the SUV market). In 1996, the Big 3 (GM, Ford, Chrysler) sold a whopping 5.3 million cars, which was 62.5 percent of all cars sold in the United States. Ten years later in 2006, the rechristened Detroit 3 sold 3.4 million cars, or 41.5 percent of the cars sold in the United States. The car market increased by 400,000 during those 10 years, so the Detroit 3 were making fewer sales in a rising market.

In 1996, the Chevrolet and Ford divisions were unchallenged in car sales. Today, they are second and fourth. Toyota is the leader, and Honda is third, 147,186 ahead of fourth-place Ford. What's more, Nissan Division is only 35,537 units behind Ford.

The Toyota-Ford shift is astonishing. For nine months of 2007, Ford was 462,966 sales behind Toyota. For the corresponding period in 2002, Ford was 31,521 sales ahead of Toyota. That's a swing of nearly 500,000 sales in five years.

About a decade and a half ago, the Detroit 3 just about abandoned the car market to concentrate on the more profitable truck side. Today, the market is shifting back toward cars, and the domestic makers simply do not have the products that car buyers want.