VW's CEO commits to mid-sized SUV for US market as it looks to achieve bold 2018 sales target

Volkswagen (VW) CEO Martin Winterkorn has reiterated the company's plans to add a new mid-sized SUV to its product portfolio in the US, a model which will be integral to the company's ambitions plans to achieve brand sales of 800,000 units by 2018. During a meeting with US dealers Winterkorn said the OEM needed to "take initiative" in that crucial segment of the US car market, according to a transcript of his remarks viewed by Automotive News, a sister publication of Automotive News Europe. "And we will," Winterkorn said. "I promise you." Winterkorn's remarks will be what the company's US dealers wanted to hear after a difficult six months in which the company's US sales have somewhat stalled in comparison to the wider market, which grew by 7.7% y/y in the first half year-on-year (y/y) while VW's sales only rose by 2.7% y/y in the equivalent period. The company's US dealers are keen to have a mid-sized sport utility vehicle (SUV) to plug the gap between the compact Tiguan SUV and the Touareg. Winterkorn reportedly attended the meeting with the firm's US dealers accompanied by the CrossBlue, a three-row, seven-seat SUV concept VW brought to the Detroit Auto Show this year, as well as the CrossBlue Coupé, a five-seat SUV concept shown at the Shanghai auto show with a coupe-like design similar to that of the BMW X6. It appears likely that the new mid-sized SUV will follow the form and concept of the CrossBlue relatively closely with the concept being well received on its debut by the audience at Detroit (see United States: 15 January 2013: NAIAS 2013: Volkswagen unveils diesel-hybrid CrossBlue Concept). The SUV-D segment is the second-best selling segment in the US and VW's own data suggests that the segment's sales could increase by 21% between now and 2021 in the US and Canada, so it is vital that VW is represented in the segment. The concept used a plug-in diesel hybrid powertrain and while it is possible that later production versions of the model could feature such a powertrain, it is likely that it will feature a range of conventional gasoline (petrol) and diesel powertrain options when it is launched.

VW's line-up and sales mix in US remains dominated by the Jetta and the Passat sedans, and this is something that VW will need to address if is to come anywhere near achieving its ambitious sales target. The Group is targeting 200,000 Audi sales by 2018 to generate combined VW brand and Audi sales of 1 million units by that point. Earlier this year Rainer Michel, vice-president of product marketing and strategy for Volkswagen of America, emphasised that a more affordable mid-sized SUV was something of a holy grail for the VW's US dealers at the moment and this was the model dealers were most eagerly anticipating in terms of the company's future model launch plans. He said, "It's the biggest priority at the moment," noting that VW is "still a sedan-rich company."

Outlook and implications

Speaking to Automotive News in March, VW board members confirmed that the business plan for the new mid-sized SUV is already in place and there is also room to build an assembly line for the model at VW's new manufacturing plant in Chattanooga in Tennessee. This plant went on line in 2011 manufacturing the new New Midsize Sedan (NMS) Passat, which was developed specifically for the US and Chinese markets. This model going on line in 2011, along with the new Beetle, and the new Jetta the year before witnessed the brand's US sales surge in 2011 by 26.3% y/y to 324,000 units and 35.1% y/y in 2012 to 438,000 units. Therefore the slowdown in sales growth is quite understandable to a degree, given that VW is currently experiencing a high base comparison as a result of this growth in the previous two years. In addition the aforementioned new models which specifically fuelled this growth are now reaching maturity in terms of their sales cycles. However, this is further evidence to back the idea that VW must broaden its model range to make it less reliant on its sedan offerings and into the SUV and crossover markets. The company sold 31,000 units of the Tiguan in the US last year, which was admittedly a very healthy 22.1% y/y uplift on the figure in 2011, while it only sold just over 10,000 Touaregs. However, the brand's chances in the segment below are likely to be better. However our forecast currently suggests that the production variant of the CrossBlue will only add in the region of 40,000 units to VW's annual brand sales in the US.

As a result, the 800,000 unit sales target by 2018 looks like something of a stretch goal as we see it. Our forecast sees VW undershooting the target by a considerable amount (518,000 units by 2018). The CrossBlue will be an important model and will sell in the region of four times what the Touareg currently sells, at around 40,000 units per annum. The relatively low sales numbers of the Touareg in comparison to the M-Class or the X5 indicates that US consumers do not see VW as a premium brand, and if they buy a luxury SUV they want it to carry a properly premium badge. Therefore it appears to make sense to position VW as the defined mid-market brand in the US while Audi competes head to head with its traditional rivals such as BMW and Mercedes-Benz. Therefore If VW is to have any chance of achieving its ambitious 2018 sales goal it appears it will have to dramatically expand its range of crossovers and SUVs, and invest considerably in dealership and marketing infrastructure in excess of current levels.