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Wasting Time: VW Should Give Up on the U.S. Market and Focus on the Developing World

Coming to America, again and again
When it comes to the U.S., Volkswagen has some serious nostalgia. In the late 1950s and early '60s, the iconic Beetle was a revelation. And ever since then, VW has been trying to make American work. But the past decade or so hasn't been pretty. This hasn't deterred VW from keeping the U.S. top of mind. Unfortunately, it's a complete waste of time.

Engineering success
Here's what Motor Trend had to say on the subject last month:

"German engineering still has a very good image in the USA." [brand development director Ulrich] Hackenberg says. "It is our job, and the job of [North American chief Jonathan] Browning, to bring that to the customer."

VW has tried competitive pricing with Japanese brands and "affordable German engineering" in its marketing before, though not both at the same time. A mix of big, low-priced German sedans for the American market, and more interesting cars like the GTI and CC, might work this time. Until it does though, we don't envy Mr. Browning his task.

You can't avoid the idea that VW thinks engineering will sell cars -- just like it does for (VW-owned) Audi, BMW, and Mercedes! Unfortunately, luxury engineering and VW aren't two concepts that go together.

All that U.S. consumers seem to have learned from VW's struggles is that discount Teutonic technology is just that. Worse, the Japanese have demonstrated that their engineering is as good as the Germans, if not better. And Detroit has shown, in the past few years, that it can tell an engineering story, too (Chevy Volt, anybody?).

Look to Latin America and Asia for growth
VW wants to be the biggest automaker in the world, which means it has to think about North America, the world's most competitive car market. But it also need to know when to stop dreaming about the U.S. market, where its market share currently stands at a meager 2 percent.

Plan for the future? A million vehicles by 2018 and a 6 percent share. To support this goal, VW has built a plant in Tennessee to construct -- wait for it -- a mass-market sedan! Wait, sorry: a mass-market German sedan, with that amazing affordable German engineering.
Meanwhile, VW already sells something like 7 million vehicles in the rest of the world. It moves 2 million on them in China, where the market could grow to 40 million total annual sales by 2020. It has 22 percent of the market in Brazil and could easily get to a million vehicles in sales there.

If you can make it in the U.S.A....
VW could aim for a stable share of the U.S. market -- say, 3-4 percent -- and treat it as advertising. I don't see how the master plan is going to work, given that the auto market her may plateau at 15 million yearly.

The Big Three and the Japanese already have most of it. German luxury brands (including Audi) and the South Koreans effectively have the rest. The Chinese are on the way. In this context, VW's complex product strategy is perplexing, it not actually sort of stupid.

Small, well-engineered cars make plenty of sense in Latin America, however, where VW is well-established. The brand also has value in China, where it can project a quasi-luxurious image that trumps its main Western competitor, General Motors (GM).

People still love the idea of VW in America. And for that, they have Audi. But VW itself may be a brand whose time has more than passed.

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