VW: Pig in a Poke?

2002 Volkswagen New Beetle Turbo S by Marty Padgett (12/31/2001)

DETROIT—To listen to German car executives at the North American International Auto Show gossip and poke fun at Volkswagen, one would think that VW was some poor, unemployed, overweight, greasy-haired lumpkin who was about to ask Britney Spears for a date the same night as the Grammy Awards.

Top brass at DaimlerChrysler, BMW, Mercedes-Benz and Ford’s Premium Auto Group were as catty as Little League mothers about Volkswagen’s forthcoming Phaeton luxury sedan set to debut at the Geneva Auto Show in March.

To hear them all cackle, one would think Bernd Pischetsrieder is inheriting a pig in a poke from Archduke Ferdinand Piech. Volkswagen AG chairman Piech steps down in April, but over to his new job as chairman of the supervisory board where he will be looking over Pischetsrieder’s shoulder.

A high-ranking executive at Ford’s PAG, who scoffs at Piech’s Phaeton, says: “I don’t know what VW thinks it is doing. You sit in the Passat W8, and it feels identical to an Audi A6 right down to the craftsmanship in the door panels. You can’t have that kind of sameness in your brands and expect to be taken seriously.”

“I don’t disagree with that observation,” says Pischetsrieder. “We have to achieve greater differences in the vehicles that share platforms and hardware, but without spending more money to do it.”

BP gases up for change

Product differentiation is just one of the difficulties facing the company in the U.S. and abroad at the end of the reign of Piech. Customer satisfaction is another issue to be tackled as VW preps for the changeover in its chairman’s office.

Pischetsrieder, the 53-year-old former BMW chief, says critics of the similarity among some of VW’s models should remember that the Seat and Skoda products that look so similar to Volkswagen models do so because those companies were not viable. The only way to save them without overtaxing VW’s overall profitability was to give them rebadged VWs.

It would do to remember that Volkswagen as a whole was on the ropes when Piech took over in 1993, and that he only had the opportunity to engineer one generation of vehicles.

Longer term, admits Pischetsrieder, the company has to do more to create differences among the brands, or else it will fall into the trap General Motors did in the mid- and late 1980s when the Buick Regal, Pontiac 6000, Oldsmobile Cutlass Ciera and Chevrolet Celebrity — to name one product family — were identical except for the grille jewelry. Then there was the Olds Achieva, Buick Skylark and....help me, what was the third vehicle? Oh, who cares. And that, of course, is the point.

Volkswagen is protecting its profits for the next few years, which it expects to be lean, having already blown a lot of investment capital on some of Piech’s pet projects, like the Phaeton and W8 engine. Volkswagen is also adopting international accounting standards to please the European Union, and it may not be quite as easy to flimflam the books the way VW has done for decades behind opaque German accounting rules.

Though Pischetsrieder is no stranger to gear ratios and head gaskets, possessing an engineer’s heart as full of grease and WD-40 as Piech, he says he is different from his soon-to-be predecessor in one important way. “Dr. Piech tends to look at things from more of an engineering perspective, while I tend to look at things from a marketing perspective.”

That’s good news, say VW veterans. With Volkswagen, Audi, Seat, Skoda, Bugatti, Lamborghini and Bentley to manage, while parts, components and platforms are increasingly shared, it will take Pischetsrieder’s marketing savvy to make sense of it all.

He has begun by separating the company into two groups, divided by “traditional” images and “sporty” images. VW, Skoda, Bugatti and Bentley are on the traditional side, while Audi, Seat and Lambo are on the other.

While it smacks many as resembling the hideous structure GM hatched in the 1980s to group Buick, Oldsmobile and Cadillac on one side and Chevy, GMC and Pontiac on the other, Pischetsrieder says it will help to consolidate and streamline the administration, finance and product planning expenses of the company, and ultimately reduce the company’s outsourcing of engineering to companies like Karmann and Volk.

Glacial movement

VW veterans gripe that while they acknowledge Piech’s engineering genius and his contribution to saving the company after near-collapse in the early and mid-1990s, they are happy the bylaws of the company force him out at age 65 and over to the supervisory board.

Volkswagen moves glacially in the replacement of models and platforms, compared with the Japanese and even some corners of Detroit and Europe. And product planners are often stymied by so much power and decision-making being consolidated with Piech.

It will be five years after the debut of New Beetle before a Cabrio will see the light of day. The Eurovan platform is more than 20 years old. The SUV had to be developed and built by Porsche as a supplier, and is still a year away. It takes about eight years to remake VW’s bread and butter vehicles.

Quality is a broad concern, too. Volkswagen ranks sixth out of seven global auto companies in Initial Quality as measured by J.D. Power and Associates. Ford has dropped to last in the past year. VW is getting better, but it’s still below industry average.

It is improving through intimidation. For example, GM’s product man Bob Lutz is in the process of making over GM’s way of designing interiors. He and the North American boss convene weekly meetings with the designers and vehicle line executive and supplier types to go over competing models and GM’s own to get at what Lutz wants for GM. More often than not, says Lutz, he is pawing over VW and Audi.

“I asked Piech years ago how he achieves such quality in his interiors where everything fits amazingly well...hardly any gaps, and the ones that are there are uniform and small...the graining of the plastics and leathers and leatherette is all even and matched,” Lutz gushed. “Piech said, ‘The men in charge know that if they don’t get it right they will be out of a job.’”

That atmosphere of fear that Piech has employed has worn as thin as a Bobby Knight halftime speech, and so Pischetsrieder, who has been in charge of quality assurance since arriving in 2000, has been installing actual systems to keep quality improving once Piech is toodling on his $22 million yacht.

In the U.S., the quality gap between VW and its competitors is worsened by the fact that it has a dealer body that is, at the moment, perhaps second only to Daewoo dealers in customer satisfaction. These are mostly dealers who were surviving on selling Farhvergnugen buttons and hats from 1990 to 1995, and so most have been slow to plow profits of the last three or four years into new bricks and service bays.

Ask a Jetta owner how long they have to wait for an appointment to get the throttle body housing fixed on a Jetta. It isn’t pretty. Dealers are having to put off repairs for three and four weeks in some markets because their service bays and mechanics are equipped to handle the 75,000-a-year sales volume VW was doing in 1990, not the almost 400,000 it is doing today.

By the end of next year, says VW of America boss Gerd Klauss, the dealers handling about 70 percent of sales in the U.S. will all be doing business in new facilities. For now, customer satisfaction among VW and Audi owners is dropping faster than a dot-com stock.

Valued customers

Where VW and Audi are getting by is in the perceived value of the products, and the marvelous engineering. Few cars test-drive better than VWs and Audis, and few look as good under careful examination. That’s why the Golf, Jetta, New Beetle and Passat all kick butt on Power’s APEAL ranking, which measures how delighted customers are with their purchase after the first few months.

Customer Satisfaction, on the other hand, measures how the customer is feeling after three years. It is worth noting that until recently Volkswagen’s warranty only covered two years, which made that third year measured by Power a tough one for Volkswagen.

Volkswagen showed a crossover vehicle called the Magellan at the Detroit Auto Show. It is based on the Passat platform and powered by the W8 engine. It also had three rows of seats like the new Chrysler Pacifica, as well as VW’s 4Motion all-wheel-drive system. Pischetsrieder said it could be built in two years, but the chances it will be are slim. Insiders say it was a hastily built show car and does not reflect anyone’s idea of future VW styling.

The immediate worry for VW is getting the W8 Passat to the U.S. As the only eight-cylinder import sedan under $40,000, the W8 is an interesting package. But the strange W8 engine makes the car so heavy that if exported as is, say VW worriers, it would incur the dreaded gas-guzzler tax. VW engineers are busy retuning the gear ratios to try to improve the fuel economy just enough to avoid the tax. If the carpet seems especially thin on W8s, you’ll know why as the company is scrounging to get weight out of the car.

The Microbus has a 50-50 chance of being approved. One of the debates is price. VW’s Americans insist it come to the U.S. priced around $26,000 for a base model. VW AG says it has to price it at $30,000 or above to be profitable. The Microbus has been conceived on the platform of the next Eurovan platform. It seems a stretch to think that VW can build a Microbus that minivan haters will love off a commercial van platform. Recent debate has centered on building it off the same platform as the European Sharan minivan, or even the Passat platform.

In the meantime, look for a crossover/microvan to be built off the next Golf platform. The spin-off was meant for European and Asian markets, but VW of America is pushing for a vehicle with more dynamic design than the Jetta wagon being sold now.

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