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Volkswagen Outlines Growth Strategy at Fleet Preview

October 2011, by Mike Antich - Also by this author

As part of its ambitious plan to reach U.S. sales of 800,000 by 2018, Volkswagen is building a new, specifically engineered American version of the Passat. The larger, 2012 Passat sedan will be built at the company’s recently opened manufacturing facility in Chattanooga, Tenn.
As part of its ambitious plan to reach U.S. sales of 800,000 by 2018, Volkswagen is building a new, specifically engineered American version of the Passat. The larger, 2012 Passat sedan will be built at the company’s recently opened manufacturing facility in Chattanooga, Tenn.

Volkswagen of America (VWoA) has set its sights on aggressive sales growth in the U.S. Its corporate goal is to increase U.S. annual sales to 800,000 units by 2018, which would expand its market share to 5.3 percent. In comparison, in calendar-year 2010 VWoA had sales of 257,000 units, which represented a 2.2-percent market share.

“Fleet is a key part of our growth strategy,” said Mark Barnes, chief operating office for VWoA. “Our pipeline is full of product that will broaden our customer appeal and meet a wider array of customer needs.”

Barnes made his comments at VW’s first-ever commercial fleet preview, held June 28-30, 2011, in Chattanooga, Tenn. The corporate fleet preview included 87 attendees and featured fleet market presentations by VW senior management, product demonstrations, a ride-and-drive, and a tour of the company’s brand-new $1-billion factory, where the Passat is assembled.

The corporate fleet preview was favorably received by fleet managers attending the event. “VW did a fabulous job with the Chattanooga production plant. I was also impressed with its commitment to fleet — impressed enough that we included the Tiguan and the new Passat on our fall selector,” said Donna Bibbo, CAFM, manager, fleet and travel for Novo Nordisk. “Now the ‘proof will be in the pudding’ to see if it can deliver on what it’s promised.”

This sentiment was echoed by Jim McCarthy, director, vehicle management services for Siemens. “We have included the VW Passat on several of our selectors this year — all due to what we felt was an extremely valuable and enlightening fleet preview in Chattanooga,” said McCarthy.

During the fleet preview, Barnes stressed that VW is committed to growing its commercial fleet market share, which was positively received by attending fleet managers.

“It will take time for Volkswagen to build its fleet sales, but they seem to be going about it the right way,” said Keith Scolan, manager, global fleet for Illinois Tool Works Inc. (ITW), who was one of the fleet preview attendees. “The corporate fleet sales preview in Chattanooga emphasized VW’s commitment and desire to grow its fleet business.”
To service and support commercial fleet customers, VW has identified 281 fleet-minded dealers to form its Preferred Fleet Dealer Network.

“These dealers have committed to providing commercial fleet customers with a personal delivery experience. We want every commercial customer to have the same experience a retail customer would during the delivery process,” said Martin Kiel, fleet manager for VWoA. “We don’t want a customer to come in and simply get handed a set of keys and an owner’s manual. The delivery experience is much more than that and every customer should have a personalized experience. It is our goal to sign up every dealer in the Preferred Fleet Dealer Network.” 

In addition, Volkswagen offers factory-direct ordering with major fleet management companies. Also, the VW Supplier Discount Purchase Program has been extended to its corporate fleet customers.

“Volkswagen has a strong global presence and excellent financial health,” said Barnes. “Investment in the U.S. production will enable us to improve our competitive position and achieve our sales goals.”

This view was reinforced by attending fleet managers. “This is our first year to include Volkswagen models on our selector list in the U.S. and Canada. In the past, to have a foreign vehicle on the list was not viewed favorably. The extended lead times, higher acquisition costs, and being an import immediately excluded them from consideration,” said Scolan of ITW. “But today, with most of the manufacturers integrating many resources and building U.S. factories, the ‘foreign’ vehicle is easier to accept. In addition, we will look forward to leveraging our VAG (Volkswagen Audi Group) international agreement.”

Another prominent fleet manager who attended the fleet preview said he is currently working on a global agreement with VW. “In addition, we were impressed enough with the event that we have added the Passat and the Jetta to our approved vehicle list,” said the fleet manager who wished to be anonymous.

Chris Hoehner, general manager, corporate sales for VWoA believes VW is well-positioned to serve the commercial fleet market. He cites strong brand recognition and a global presence. He believes VW products offer a strong alternative as “distinctive German-engineered vehicles,” which are “positioned in the sweet spot of the market.” According to Hoehner, there are six key elements to the company’s fleet growth strategy:

  • Investing in local production.
  • Increased dealer network capacity to support sales and service.
  • Repositioning products into the heart of fleet segments without sacrificing Volkswagen’s unique “DNA.”
  • New product launches into high-volume segments.
  • Investing in alternative-fuel options.
  • Controlled growth in fleet channels to protect residual values.

“Volkswagen’s competitive fleet advantages are low cost of ownership, safety, fuel efficiency, and environmental responsibility,” said Hoehner.

In terms of cost of ownership, Hoehner cited no-charge scheduled maintenance. There will be no charges for scheduled maintenance for the length of the new-vehicle limited warranty, which is three years or 36,000 miles, whichever occurs first. Known as Volkswagen Carefree Maintenance, it is standard on all 2012 Volkswagen models.
Another factor is longer service intervals, which occur at 10K, 20K, and 30K miles for all 2012 model-year Volkswagens, except the Routan.

An additional factor lowering overall cost of ownership is longer oil drain intervals. “Since all current Volkswagens use synthetic oil, except Routan, combined with state-of-the-art European engineering, a 5,000-mile oil change is no longer necessary,” said Hoehner.

An integral part of the low-cost of ownership are the various initiatives to protect residual value. One initiative, according to Hoehner, is the strategic and controlled growth in fleet channels. “We will not force cars into the market to increase sales. This will create strong dealer demand for used Volkswagen products,” said Hoehner.
Other residual value initiatives include optimizing the remarketing of off-lease and off-fleet vehicles into the dealer network.

“One objective of our remarketing initiatives is to keep used-car supply and demand in balance. This is achieved by managing lease maturities to avoid over supply in a point in time, in addition to engaging the entire dealer network in reselling our off-lease volumes,” said Thomas Meuser, GM of fleet, certified and pre-owned. “We have therefore put programs in place, supporting our dealers in sourcing their used car demand via our off-lease volumes and selling the majority of off-lease vehicles within our network. Currently over 90 percent of our lease maturities are sold via our VW dealer network.”

In addition to supply management, VWoA is supporting used-car retail demand by maintaining a competitive certified pre-owned (CPO) program.

“The broad dealer engagement together with added value to our used VWs through our CPO program is generating a retail price premium feeding back to strong residual values,” said Kiel.

With a philosophy that a rising tide raises all ships, VW believes residual values for all of its models are increased as a carryover effect of its strong CPO program. “CPO sales increased from approximately 44,000 units in 2009 to approximately 55,000 in 2010 and are on pace for 70,000 in 2011,” said Hoehner. “As a result, VW resale values are up more than 20-percent over the same time period.”

In terms of fuel efficiency, VW was the first automaker to offer a clean diesel car certified in all 50 states. The Golf TDI and Jetta TDI are rated with an automatic transmission at 30 mpg city and 42 mpg highway, according to 2011 EPA estimates. Altogether, VW builds more cars with 25-plus highway mpg than any other car brand.

VW says environmental responsibility is an integral corporate strategy. “Our green mobility is setting new standards in manufacturing,” said Hoehner. “Every new vehicle is environmentally better than its predecessor.” Hoehner says this is embodied in VW’s philosophy, “Beyond the Factory — The VW Forest.”

U.S.-Built Passat Part of VW Strategy to Expand Market Share


The 2012-MY Passat.
The 2012-MY Passat.

As part of its ambitious plan to reach U.S. sales of 800,000 by 2018, Volkswagen is building a new, specifically American version of the Passat. The larger 2012 Passat sedan will be built at the company’s recently opened manufacturing facility in Chattanooga, Tenn.

The 2012 Passat is 191.7 inches long and has a 110.4-inch wheelbase. The new model also features more interior space, including three extra inches of rear-seat legroom and 15.9 cubic feet of cargo space, which can be made larger when the 60/40-split-folding rear seatbacks are down.

The build combinations for the 2012 Passat have been dramatically reduced to ensure optimal quality. In 2012, the Passat will have 15 different build combinations compared to 128 in 2009.

The Passat features three drivetrain options: a 2.5L gasoline engine, a 2.0L TDI Clean Diesel, and a 3.6L VR6.
The 2.5L five-cylinder engine is rated at 170 hp and will be mated to a standard 5-speed manual transmission. The 2.5L multi-port injection engine is available with an optional 6-speed automatic transmission. VW says this will represent 77 percent of the Passat’s built at Chattanooga.

The four-cylinder, 140 hp 2.0L TDI Clean Diesel is expected to deliver 43 mpg on the highway with a range of about 800 miles. The Passat’s TDI clean diesel engine is equipped with a selective catalytic reduction (SCR) system, fulfilling emissions requirements in all 50 U.S. states. A 6-speed DSG (direct-shift gearbox) transmission is available as an option. This model will represent 13 percent of the Passat’s built at Chattanooga. It is the only model in its segment that will be equipped with a TDI diesel.

The 3.6L VR6 delivers 280 hp and 28 mpg on the highway, which will represent 10 percent of the total production volume.


VW Opens New Facility in Chattanooga, Goes Green

By Chris Wolski

Last May, Volkswagen opened a brand-new $1-billion assembly plant on a 1,400-acre site in Chattanooga, Tenn., which is expected to build 150,000 mid-size Passats. The first U.S.-built Passat rolled off the assembly line on April 18, 2011. The plant has created 2,000 jobs in the local economy.

“Our investment in U.S. production will enable us to improve our competitive position and achieve our sales goals,” said Mark Barnes, chief operating office for Volkswagen of America.

 “The tour of the new VW manufacturing facility in Chattanooga was well worth the time. Aside from the extremely positive economic influence this plant has had on the local communities, there were several other impressive takeaways – from the emphasis on sustainability in the manufacturing environment, to the on-site training college and facilities,” said Jim McCarthy, director, Vehicle Management Services for Siemens. “But from a practical perspective, what impressed me the most was the fact that quality was a central theme throughout the tour. Everyone talks quality, but this VW plant had several defined processes in place to ensure that quality was always at the forefront of everything it did.”

Under construction since 2009, the Chattanooga facility was built to stringent U.S. Leadership in Energy and Environmental Design (LEED) standard, which lays down provisions for the sustainable, environmentally compatible construction of buildings.

“Volkswagen has certainly set itself up to be a major contender among the other major fleet manufacturers,” said Bob McLovich, sales operations manager for U.S. Commercial Field Operations for Teva Pharmaceuticals. “The tour of its factory was fantastic. It gave me an appreciation for Volkswagen’s dedication to its presence in the U.S. Volkswagen also earned my respect for providing so many jobs locally and establishing that state-of-the-art facility right in the heart of America.”

A plant in Mexico will be primarily responsible for producing another mid-size, the Jetta, for the U.S. market. A hybrid Jetta will debut in 2013. In the near future, the company will introduce the next-generation Beetle.

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