Tue | Sep 19, 2017

Volkswagen stakes hopes of sales revival on new SUV

Published:Friday | September 2, 2016 | 9:00 AM

Volkswagen's new SUV comes with a feature that automatically controls braking to each wheel as the seven-seater descends on slippery off-road terrain.

The German automaker is staking its hopes on the new model being just as adept at arresting the company's sales woes in the United States.

The midsized SUV was seen as key to reviving flagging US sales even before the Volkswagen's diesel emissions-cheating scandal rocked the company to its core and caused one of the world's largest automakers to reassess how it does business around the globe.

The new SUV is scheduled to begin production at Volkswagen's lone US plant in Tennessee towards the end of this year, with the yet-to-be-named vehicle arriving in dealer showrooms early in 2017.

Volkswagen sales through the first seven months of the year were down by 13 per cent compared with the same period before the news of the emissions scandal broke in 2015. The Tiguan compact SUV has been one of the company's few bright spots in the US, with sales growing by 49 per cent over the same period.

The company hopes to build on that success with the new midsized SUV. Following a test drive of a camouflaged prototype of the new vehicle, Matthias Erb, the chief engineering officer for Volkswagen's North American region, said the new SUV fills a gap that Volkswagen had when it came to growing families.

"If someone already had a Passat but wanted something bigger after having two kids, we didn't have anything to offer them," Erb said in an interview with The Associated Press, conducted in German. "The Tiguan was too small, because a compact SUV offers essentially the same space as a midsized sedan."

SUV sales up

According to Autodata Corp, midsize SUV sales were up 4.5 per cent in the US through July. That's more than three times the total industry increase of 1.3 per cent, so this is an extremely popular segment. The biggest seller is the Ford Explorer, with more than 148,000 sold through July, up 1.7 per cent from the January-July period a year ago.

Volkswagen's SUV is coming at a good time for the company - provided it is priced competitively, said Rebecca Lindland, a senior analyst for Kelley Blue Book.

"They're coming into a segment that already has a lot of eyeballs on it and a lot of interest in it," she said.

Challenges will include changing perceptions among consumers accustomed to thinking of Volkswagen as selling compact sedans, and to try to ensure the SUV fits US tastes by fostering a culture of being "listeners rather than tellers," Lindland said. That way, the company can develop an understanding of "what the US market needs versus what other markets need around the world however illogical or emotional it may seem."

Volkswagen officials also promise that the new model will be priced competitively with existing SUVs, a segment of the market where Volkswagen has struggled in the past. The company is also keen to avoid repeating mistakes it made with the US version of the Passat, which made an initial splash but then fizzled as the buyers were left underwhelmed compared with the European version.

"With the Passat, we saved money on areas that the customer sees and notices. And you can't do that," Erb said. "You can ruin the entire party with the final three per cent of the vehicle."

The company has since decided to add a new engineering centre near the plant to better adapt to local tastes.

"For example, our instrument cluster is very conservative. Germans think it's great, but Americans think it's boring," Erb said. "And that goes through the entire car."

But those changes will be limited to the interior and exterior of vehicles, because Volkswagen builds a shared construction platform for vehicles around the world, and it isn't going to be able to develop chasses and engines specifically for the US market. Erb said that's hard to overcome, in part because US customers don't need vehicles that can hold their own on the Autobahn.

"Our cars are always laid out for top speed including the B-SUV, which can be driven at speeds that would guarantee landing you in jail here without running the risk of exceeding its limits," Erb said.

The additional development and production costs to meet these standards are often something US consumers are less interested in having passed on to them than their German counterparts, who might regularly drive faster than 125 mph.

As for the remainder of the vehicle, the debate within the company is about how much VW can dial back features before it affects the core of the global brand, he said.

"But with more local expertise and authority to make decisions up front, at least you have the chance to meet the demands of the market," Erb said.

The success of the new SUV is also key to the future of the Chattanooga plant, which has only made the Passat sedan since opening to great fanfare in 2011. Most of the other Volkswagens destined for the US market are made in Mexico.

"One vehicle for a whole plant is never good," Erb said.