Volkswagen Dealers The recent Volkswagen scandal has not only angered many of its customers, it is also threatening the prospects of hundreds of dealerships around the country that are anxious to learn how to fix diesel cars that intentionally thwart emissions tests.
And it is happening at a delicate time for Volkswagen and its 650 dealers in the United States, where sales have slumped in recent years while the domestic car market rebounded.
For several years, American dealers complained to Volkswagen that it was offering the wrong cars for the domestic market and that its prices were too high compared with its rivals.
But the appointment last year of a new German top executive in the United States, along with a major commitment to build a new sport utility vehicle for the American market by next year had raised hope among dealers that they could turn their fortunes around.
Instead, the dealers are on the front line of a controversy that has tarnished the carmaker’s reputation and could undermine sales. It is a new strain in what was already a tense relationship between dealers and the parent company.
“The recent events unfolding globally regarding the diesel scandal has hit the dealers in the U.S. extremely hard,” said Alan Brown, who is chairman of the Volkswagen National Dealer Advisory Council and runs two Volkswagen dealerships in Texas. “We have been suffering from an outdated product cycle, overpriced product and a deteriorating relationship between the dealer body and Volkswagen for a number of years.”
For now, dealers must manage the expectations of angry car owners harmed by Volkswagen’s deception while engineers at the company’s headquarters in Wolfsburg, Germany, figure how to fix the diesel cars so they comply with emissions standards while still retaining performance and fuel economy.
Volkswagen revealed last week that it had sold 11 million diesel cars with software that lowered pollution levels during emissions testing. Volkswagen’s new chief executive, Matthias Mller, said he expected to have a remedy submitted to regulators in the next few days.
About 482,000 of those cars equipped with the cheating system were sold in the United States, according to the Environmental Protection Agency. Those will have to be recalled and fixed. Car dealers are also stuck with hundreds of diesel-engine cars on their lots that they can no longer sell until Vokswagen fixes the emission problem.
“We are sitting here doing the best we can, and we’re waiting patiently along with the rest of our customers to see what Volkswagen decides to do,” said Lance Willis, the general manager of a Volkswagen dealership in the Woodlands, Tex.
Three days after admitting to its deception, Volkswagen told its dealers that it would provide financial guarantees and extra bonuses to “stabilize your profitability in the near term.”
It also stressed in another dealer communication that the problem did not affect the safety of its vehicles and that the company was working hard to find a solution, a message it has since posted on its public social platforms.
“We understand the pressure these recent events have put your business under, and we are committed to providing you support,” the letter said, which was signed by Michael Horn, the chief executive of the Volkswagen Group of America.
As part of its financial support, Volkswagen said it would offer to reimburse dealers for the cost of holding on to diesel cars affected by the sale freeze until repair instructions were released. The company will also pay dealers $300 for any new gasoline-powered car they sell, $600 for Passat models and will guarantee extra bonus compensations for dealers for cars sold in the third and fourth quarter this year.
Relations between Volkswagen and its dealers have been increasingly tense in recent years. Until Mr. Horn was appointed in 2014, dealers complained that their voices were not being heard by the company’s leadership in Germany. They warned that the overly ambitious goal of selling 800,000 cars by 2018 would not be met and said the company’s lineup needed cars that were better adapted to the American market.
Partly in response to those concerns, Volkswagen said last year that it would produce at its plant in Chattanooga, Tenn., a new midsize sport utility vehicle targeted at American consumers. The new vehicle is expected to be ready by 2016, part of a $600 million investment in its sole American manufacturing plant.
The plan was a signal that Volkswagen’s slump in the United States had finally caught the attention of its top managers.
Volkswagen become the largest carmaker in the world when its sales surpassed those of Toyota last year. But in the United States, the company ranks at No 10, far behind market leaders like General Motors, Ford and Toyota, and also trailing Kia, Hyundai and Subaru.
Through August, the company sold 238,000 cars in the United States this year, down about 3 percent in the period last year. By contrast, General Motors had sold more than two million cars since the beginning of the year, and its sales rose 3 percent. Volkswagen sales in the United States accounted for just 6 percent of the 9.5 million cars it sold around the world last year.
Despite the scandal, dealers have praised Mr. Horn’s leadership, saying he had repaired the trust between dealers and Volkswagen. Mr. Brown, of the Dealer Advisory Council, added that unless Mr. Horn was directly implicated in the fraud, his removal as the top American executive “would be nothing short of catastrophic to our market and our relationship.” (The company said last week it would keep Mr. Horn as the head of its business in the United States..On Tuesday, the company named a company veteran, Winfried Vahland, the chief executive of Skoda, a Czech subsidiary, to a new board-level position overseeing all of its North American operations.)
Jeannine Ginivan, a spokeswoman for Volkswagen, said the company was working with its dealers to address their immediate needs. “Dealer and customer satisfaction is a top priority for Volkswagen,” she said.
There is no playbook for how to move forward for Volkswagen. While recalls are common, they generally involve a safety problem that must be addressed, not a ploy to foil regulators.
“Volkswagen’s acknowledged misconduct regarding its vehicle emissions has been extremely disappointing, and dealers are deeply concerned about how this breach of trust will affect their customers,” said Jared Allen, a spokesman for the National Automobile Dealers Association.
Steve Wilhite, a former marketing executive at Volkswagen in the 1990s, said the company needed to take quick steps to protect dealers. He suggested that the company should offer to buy back diesel-power cars from customers at the full retail value before news of the diesel scandal broke and then sell them back to dealers at a discount to their wholesale value.
“This was just an unbelievably stupid, arrogant series of decisions,” he said. “And the dealers are going to take a beating. People who were shopping for Volkswagen may take those cars off their shopping list because they don’t trust the company. It wasn’t the fault of the dealers.”