Browning: VW expects more US growth in 2013

[January 16, 2013]  DETROIT (AP) -- New vehicles and lower prices helped Volkswagen AG to its best U.S. sales year ever in 2012. But it has even bigger plans.

Volkswagen -- which is made up of the Volkswagen, Audi and ultra-luxury Bentley, Lamborghini and Bugatti brands -- wants to nearly double its U.S. sales to 1 million by 2018, as part of a larger plan to reach 10 million sales worldwide.

Auto companies are often reluctant to set public sales targets for fear they won't meet them. But Volkswagen Group of America chief Jonathan Browning said Volkswagen made its growth plan public in 2007 so employees would feel accountable and speed up plans for new products and factories.

It worked. The Volkswagen brand is seeing its biggest U.S. sales since the early 1970s after reengineering its products for the U.S. market and lowering prices by a few thousand dollars. Volkswagen opened a new factory in Tennessee in 2011 and will open a new engine plant in Mexico this week to meet demand.

"The major motivation was to really give a very, very clear signal to the internal organization that business as usual won't deliver that sort of sales," Browning said. "We couldn't carry on as we had been at that time and expect the results to flow."

Browning talked with The Associated Press this week at the North American International Auto Show in Detroit. Here are three questions and his answers.

Q: Critics complained that Volkswagen used cheaper materials and changed the driving feel when it released the latest, lower-priced Jetta and Passat for the U.S. market. But sales are way up. What do you say to that?

Browning: "I think first of all, when you look at Jetta, people tended to focus on a singular part of the plan, which was a new entry price, and maybe focused too much on the price point as opposed to what the entire vehicle lineup represented. We always were going to introduce the GLI, the top of the Jetta lineup, which is the enthusiast's vehicle.

There is an array of customers in the marketplace, some of whom want basic transportation for the everyday commute, some who are more active drivers, more enthusiastic. And so what we were doing was opening up the brand to a broader community of customers. And I think that's what we've really seen play out.

VW is a brand is very well accepted by many, many American customers. What was happening, though, was a lot of people were not putting VW on their shopping lists when it came to going to look for a vehicle because there was a perception that it was somehow out of reach from either a cost or an ability to fund ongoing cost of ownership. And I think what we've done it taken the VW brand as being perceived as something that's out of reach to something that is accessible and affordable to many, many more people.

I think there's no better example than the prior generation of the Passat. The price range that we operated in, we only competed in about 10 percent of the segment. With the new structure of the lineup, we increased our coverage of the segment to over 80 percent. So it's not something for a small community of enthusiasts. It's really available to mainstream customers."

Q: About 20 percent of Volkswagen's U.S. sales are now diesels. Are you surprised by that rate, and do you anticipate diesel sales will continue to grow in the U.S.?

Browning: "I think we'll see it continue to grow. Obviously some of that is sensitive to the price differentials between gas and diesel. But assuming that those prices remain in the bands that we see today, I expect diesel to continue to grow.

This was the one area where we were pleasantly surprised, because with Passat, we were bringing the first clean diesel into the midsize sedan segment. We thought it may take quite a while for people to adjust to the notion of a TDI (turbodiesel) in a Passat, because most of those customers were coming from gas. So you're switching from your brand that you owned previously, so then to switch again from your own brand to a different powertrain, to a different fuel type. It was two steps of conversion. But we've seen the Passat customers really accept the clean diesel technology very quickly.

And it is just such a compelling proposition. We talked a lot about the range: 800 miles potential between refills. And just the sense of convenience that that provides customers. Especially someone who does a significant amount of highway driving. You cannot beat the diesel technology."

Q: What do you expect U.S. sales to look like in 2013? And what other brands will VW take customers from?

Browning: "We think it'll be around 15 million. An increase (from 14.5 million in 2012), not a spectacular increase, but an increase. U.S. customers are remarkably resilient given the noise in terms of public spending, in terms of the debt ceiling. We see ourselves working through that as an industry. But we're pegging our forecast at a relatively cautious level.

It is important that the manufacturers don't get ahead of themselves in terms of the production planning and build rates ahead of the industry, because those are the conditions that trigger the behaviors that I think weren't terribly healthy in the run-up to the recession. From our point of view, we think selling 15 million in the short term and around 16 million in the mid-term is a sustainable level for the industry. We don't envisage going up to 17 million on a sustained basis. So we're getting back to relatively healthy levels of the U.S. industry.

We do believe VW will grow faster than the industry. Traditionally we've seen a lot of interaction with Toyota, Nissan, Honda. Over the last 18 months, we've seen -- particularly with Jetta -- a lot of cross-shopping with Ford and Chevrolet. So whether it be the Focus or the Cruze, you see some of the domestic customers cross-shopping against those more traditionally import-oriented products. I think some of those old divisions of import and domestic have really been left in the past.

[Associated Press; By DEE-ANN DURBIN]

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