How VW Can Get Hot Again
In Greek mythology, Eos was the goddess of dawn, a frisky immortal who liked to shack up with hunky gods and, on occasion, kidnap men for pleasure. Nowhere in Homer does it say anything about Eos and transportation. Yet in Volkswagen's retelling, Eos has morphed into an elegant two-door convertible. The new VW Eos features a retractable hard top that's a marvel of engineering, stowing in the rear at the flip of a switch and transforming a buttoned-up coupe into a sun-loving hellion. A car with features like that used to set you back at least $65,000. But VW priced the Eos at just under $29,000 to attract midmarket shoppers--and, the company hopes, to help kick-start the brand.
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VW could certainly use a sexy model to turn heads its way. Only a few years ago, VW was riding high with iconic cars like the Jetta and New Beetle, vehicles that delivered performance and brand charisma. But BMW's Mini swiped the Beetle's cool factor, and lots of competitors have been making midsize value machines better than Jetta. Sales in the U.S. plunged 37% from 2001 through 2005, when VW sold just 224,195 cars. With a market share of just 1.4%, it's outsold even by Kia. The North American business is a bleeder too, losing nearly $2 billion from 2004 through 2005 (including sales of VW's sister brand Audi). Worldwide, the Volkswagen Group posted revenues of $112.8 billion and profits of roughly $1.3 billion in 2005--a slim net gain.
Eos may help fuel a modest turnaround. Sales in the U.S. are up 11.8% through September of this year, thanks to all-new versions of the Jetta, Passat and Golf (now going by its old name, Rabbit), and Eos has sold out since debuting last month. But analysts estimate VW will lose an additional $800 million in the region in 2006, and they aren't sanguine about 2007. Until VW can address some production and quality issues, it can forget about profitable growth. "North America is one of VW's intractable problems," says Stephen Cheetham, an analyst with Bernstein Research in London.
Like many other manufacturers attempting a comeback, VW is engineering a revamp that involves both new products and cost cutting. At the Los Angeles auto show in December, the company is expected to unveil a small SUV called the Tiguan, due in 2008. A minivan, to be built in partnership with Chrysler, is also planned for 2008. There's even talk of importing another retro favorite, the Scirocco, which is being revived in Europe. VW aims to double sales in the U.S. over the next five to six years. "If we're going to be a global player, we have to address our underperformance in the world's biggest car market," says Adrian Hallmark, executive vice president of Volkswagen of America.
Perhaps most distressing for a German brand is VW's dismal reputation for quality. VWs still handle crisply and feature the sharpest interiors in their price category, but owners complain about everything from puny cup holders to noisy brakes. Consumer Reports does not recommend any VWs, while J.D. Power ranks VW 35th out of 37 nameplates in its latest survey of initial vehicle quality. VW representatives point out that the company's scores are improving, which is true. But so are almost everyone else's. "Shame on us that we haven't moved up the rankings," says Hallmark.
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