VW emission stink gets up the US's nose

New captain Matthias Müller (left) is forging on with changes to VW, backed by interim chair Berthold Huber (centre) and German politician shareholder Stephan Weil. (John MacDougall, AFP)

New captain Matthias Müller (left) is forging on with changes to VW, backed by interim chair Berthold Huber (centre) and German politician shareholder Stephan Weil. (John MacDougall, AFP)

Volkswagen’s admission this month that it was lying to customers about the benefits of diesel engines hit where it hurts: the showroom.

The German brand had been counting on fuel-efficient and fun-to-drive diesel-powered cars to turn around its slump amid a United States truck and sports utility vehicle (SUV) boom.

Now, with its smaller diesels pulled from dealer lots while engineers work on a fix, analysts are split on whether VW will be the only major manufacturer to report a sales decline for September.

No one is more eager for a VW refit than Alan Brown, who runs the US’s largest Volkswagen outlet. Even with 22% of his 237-vehicle inventory now quarantined, he said customers at Hendrick VW haven’t stopped asking about the cars.
Last weekend, his team sold six new vehicles and handled questions from customers who like the diesels, wanted to know when they would be available and wondered what kind of discounts they could soon carry.

“People are smelling a little blood in the water,” said Brown, general manager of the dealership in Frisco, Texas, near Dallas. “The hope is the factory decides to give a little back to the community in the form of incentives. I think they will, and I think we come out of this stronger.”

The US’s love of trucks and SUVs, fuelled by available credit, cheap fuel and the latest technology, is helping push vehicle sales to the highest levels in more than a decade. Industry researcher LMC Automotive is raising its 2015 total light-vehicle sales forecast to 17.2-million units from 17.1-million units.

When vehicle manufacturers report their September sales, the industry may show a 13% jump in car and light-truck deliveries, for an annualised rate, adjusted for seasonal trends, of 17.7-million, according to the average of 12 analyst estimates in a Bloomberg survey.

The projected gains include 19% at Ford, 14% at Fiat Chrysler and 9.3% at General Motors. At Toyota, sales may rise 16%, seven analysts estimate.

Volkswagen, including Audi, is likely to be the odd one out: four analysts are evenly split between those who predict a decline or a gain. Their average estimate, for a 0.8% increase, is the lowest of any major vehicle manufacturer.

If sales do rise, analysts said it may be that VW, like other companies, benefited from the Labor Day weekend, a traditional car-shopping holiday, which last year fell in August. It would also probably be because of Audi: the average of three estimates for just the VW brand is for a 6.7% decline.

VW’s US sales have dropped for two straight years, hurt by an ageing line-up that lacks a mid-size SUV. To try to more than double US sales and meet a 800 000-vehicle sales goal by 2018, the manufacturer has relied on leasing to ensure a stream of repeat customers when their contracts end in 2017 – about the same time the fruits of its product-line reformation would hit dealers.

Leases, some as cheap as $39 or $49 a month, have accounted for about 40% of the company’s deliveries – more than Porsche and about double the rate of most mainstream brands.

Volkswagen has become the subject of many government investigations and lawsuits since the US Environmental Protection Agency said on September 18 that the largest European car manufacturer admitted using a so-called defeat device that turned off emissions controls when vehicles weren’t being put through official tests.

The revelation undermined VW’s diesels, which were one of its few strengths, along with a critically acclaimed line of Golf cars. Martin Winterkorn stepped down from his role as chief executive officer of the vehicle manufacturer, but he remains chief executive of its largest shareholder.

Although Baum & Associates figures show Americans buy more than three times as many hybrids and electric models as diesels, hybrid sales have been slowing and actually slipped last year as petrol prices fell. By contrast, sales of diesel vehicles have grown for eight straight years.

Jeff Schuster, the senior vice-president at LMC Automotive in Troy, Michigan, said shoppers predisposed towards diesels are more likely to delay a purchase, if possible, than to choose an electric vehicle or a hybrid instead.

“Those buyers share an interest in increased fuel economy, but that’s where it stops,” he said. “Those diesel buyers are going to be left hanging for a little bit.”

Brown, who heads VW’s national dealer council, said, although the scandal has slowed consumer demand for now, it hasn’t diminished the interest in diesels.

“The brand is working on incentives and how we’re going to face these headwinds in next few days,” Brown said. “VW has the funds to do it and do it right.”

Meanwhile, Volkswagen’s new boss, Matthias Müller, who was shifted from Porsche to replace the disgraced Winterkorn, managed to offer a positive view of the week: the reform of decision-making and accountability could enable Volkswagen “to emerge from this crisis stronger than before”, he said.

The announcement capped a tumultuous week after the company admitted that Volkswagen rigged some diesel engines to cheat on emissions tests, which cost the company €20-billion in market value and prompted Winterkorn to step down.

Müller (62) vowed to do what it takes to fix the company and its tattered reputation, after what the interim chairperson Berthold Huber referred to as a “political and moral catastrophe”.

The changes taking hold include an overhaul of management and new lines of reporting. Müller had been instrumental in laying out the structure aimed at making the 12-brand group more responsive to customer needs.

Volkswagen will create a North American group under Winfried Vahland, the head of the Skoda brand, in an effort to repair its reputation in a market where it has struggled for decades. – © Bloomberg

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