Volkswagen is gaining traction in the U.S. after decades of promises and false starts.
In the U.S., the German automaker is still a niche player, but the VW brand hit a high-water mark in 2012 with 3% market share and 438,133 vehicles sold, up 35% from the previous year.
That is monumental for a brand that only exceeded 300,000 annual U.S. sales five times in the last 33 years, according to WardsAuto. The brand dipped to 0.4% of the U.S. market in 1993 with fewer than 50,000 sales and debated leaving the market.
To maintain momentum, the VW brand needs an affordable SUV to compete with the Ford Explorer and Honda Pilot, said Rainer Michel, vice president of product marketing and strategy for Volkswagen of America.
"It's the biggest priority at the moment," he said, noting that VW is "still a sedan-rich company."
VW relies on core cars: Passat, Jetta, Golf and Beetle, all customized for the U.S. For SUVs, VW imports the small Tiguan and high-end Touareg but the glaring gap is an affordable family-size SUV.
The solution: the CrossBlue concept that debuted at the North American International Auto Show in Detroit.
"We are gauging reaction, and it was very good, and we are now doing our homework to get to a decision with the board," Michel said in an interview. The business case requires approval.
The decision to proceed and where in the North American Free Trade Agreement region it will be built should be soon.
"We will decide in the next couple months," Michel said, noting it is important it be built in the U.S., Canada or Mexico.
The expectation is it will be built at the new plant in Chattanooga, Tenn., that makes the Passat, which uses the same huge MQB platform for vehicles with transverse engines.
The SUV is needed to meet lofty sales targets of 800,000 VW and 200,000 Audi vehicles by 2018. The brands sold 577,443 last year. The Germany-based automaker has set a goal for all brands to achieve annual sales of 10 million globally by 2018.
"We want VW to be a volume brand in North America," Michel said. "You don't have to be the market leader, but you need enough volume to be visible and credible."
Analyst Rebecca Lindland of Rebel Three Media & Consultants said VW must identify the parts of the market it doesn't play in.
"To get the volume they need, they have to expand their SUVs. The Touareg is just too expensive for some."
VW needs to build here and immerse itself in the culture to understand the intricacies of the market, Lindland said.
It conjures a sense of deja vu for Volkswagen watchers.
The automaker's history in the U.S. is full of assurances the market matters and buyers will get appropriate vehicles.
In 2005, then-CEO Bernd Pischetsrieder created Moonraker, a 23-member team from Germany that moved to California for 13 months to travel and study trends, culture and buying habits to better integrate the isolated North American operations and end the practice of sending vehicles designed for Europe.
The hope was that a better lineup would increase sales and reverse years of U.S. losses in the millions. At that time, VW of America chief Len Hunt said the brand would hit 300,000 U.S. sales -- the minimum level necessary to make a profit -- by the end of 2006. He was off by five years.
Consumers were not embracing the high-end Phaeton sedan or the Touareg. Acceptance of the affordable Jetta showed VW needed to return to its roots as an affordable volume brand.
At that time, VW identified two gaps: a minivan and an affordable SUV. The minivan hole was filled with a VW-designed version of a Chrysler minivan but the Routan has largely run its course. Sales were down 16% in 2012 to 10,484 and only 665 were sold in January and February.
Minivans are not popular anymore, Michel said, but seven-passenger SUVs are.
The CrossBlue (the name will change) is a well-executed, drivable concept, Michel said. While the concept has six seats, the production model would handle seven passengers. And while the concept has a diesel hybrid, the final version would have conventional gas and diesel engines.
CrossBlue and Tiguan sit in the sweet spot of the SUV market while Touareg and a five-seat concept called Cross Coupe -- also awaiting board approval -- are higher-end, sporty luxury SUVs.
It follows VW's car strategy where there is an affordable Passat and the more upscale CC. The goal is to retain buyers over life stages and income levels.
But there are no plans to sell the Phaeton in the U.S. again. A Phaeton with a V8 went on sale in the U.S. in 2003, a year after a smaller version with a V6 was introduced in Europe. But the car never gained popularity here.
"It is a great car but for the U.S. no decisions have been made," Michel said, adding that a luxury sedan is a low priority.
"Our priority is to continue the momentum with Jetta and Passat and then fill the gap in the fourth-biggest segment with a midsize SUV."
"For business reasons, we can't bring everything," he said, noting the U.S. is a small market for VW and has a small voice.
Another segment VW is not pursuing here is minicars, despite its small car expertise.
"They are a competence of the VW brand," Michel said. But he thinks U.S. buyers are not interested in anything smaller than a compact car. "Anything below is just chosen by price. It doesn't make sense to enter a market where you don't make money."
Contact Alisa Priddle: 313-222-5394 or email@example.com
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