Chattanooga-made Passat sales brake amid VW diesel scandal crisis

Volkswagen's Chattanooga-made Passat suffered another month of sharply lower sales compared with a year ago in December as the German automaker sustained an overall drop in sales while it works to fix its diesel-powered engines to comply with U.S. air emission standards.

Passat sales plunged 56.4 percent in December in the U.S. while VW posted a 9 percent total drop for the brand even as nearly all other carmakers reported big monthly gains.

Akshay Anand, a Kelley Blue Book analyst, said the Passat was hit by a model changeover, a lack of a diesel version to sell due to the emissions scandal as well as a soft market for midsize sedans.

Staff Photo by John Rawlston/Chattanooga Times Free Press Dozens of new Passats made at the Chattanooga Volkswagen assembly plant are seen parked outside the plant. These cars will be used as demos for testing, internal quality control and media test drives.

The front of the redesigned version of the Chattanooga-made Passat for the 2016 model year is shown.

"The drop was pretty steep," he said. "It's a challenging environment for midsize sedans."

Still, Anand noted that sales of VW's small sport utility vehicle, the Tiguan, were up by 131.6 percent in December over a year ago. VW said that Tiguan sales of 4,900 units in the month was a record and surpassed the number of Passats sold in the U.S.

Anand said the SUV's sales and that of VW's Golf family helped make up for the Passat.

"Relatively speaking, it's not the end of the world," he said about overall VW sales, adding the December hit was an improvement over November in which it posted a 24.7 percent decline.

Bill Blair, general sales manager of Harper Volks- wagen in Knoxville, said the dealership did "OK" last month.

"We didn't kill it, but it wasn't a bust," he said.

Blair said the dealership has started to see some of the new, refreshed Passats that the Chattanooga assembly plant began producing late last year.

"They've got good incentives out there," he said. "That will get them going."

Scott Wilson, a spokesman for the Chattanooga plant, said that work schedules of factory employees haven't been affected by the Passat sales drop. Also, hiring for the production of a new midsize SUV that's slated to start late this year hasn't been impacted, he said in an email.

Anand said assembly of the new SUV can't come soon enough amid hot sales in that vehicle segment.

"A year ago in January 2015, we thought 2014 was the year of the truck and the SUV. If that was the case, 2015 was doubly so," he said. The KBB analyst cited such reasons as available credit, low gas prices and quality product in the market.

He said he traveled to Germany late last year to see the new SUV, adding that it "looks like a really good car."

VW has several new vehicles coming out in the near- to mid-term, and Anand termed it "critical" for the automaker to get the emissions crisis behind it.

Blair said the diesel emissions scandal comes up "a little, not a lot" among buyers at the dealership. He said Harper doesn't have as many diesels to sell as VW suspended sales of many models due to the crisis.

Regulators may wait until Jan. 14 to make a decision whether to accept Volkswagen's proposed recall plan on the diesels, which accounted for nearly a third of Passat sales before the crisis. VW gave EPA and California regulators additional written details about the repair on Dec. 14 and verbally on Dec. 16.

The VW diesel scandal became public on Sept. 18 when the California Air Resources Board and the EPA released a violation notice for a so-called "defeat device" on 482,000 diesel engines in the U.S. VW has admitted it installed the devices to trick regulators.

On Monday, the U.S. Department of Justice and EPA sued Volkswagen for violating air emission standards on its diesel models going back to 2009. The civil lawsuit seeks sanctions that could total more than $18 billion, pushing VW stock down Tuesday by nearly 4 percent.

Shares of Volkswagen are down by one third from a year ago, although VW shares are up by more than 20 percent from the low point reached last fall.

In addition to the potential civil penalties, Volkswagen is facing class action lawsuits from both VW diesel car owners and dealers and the carmaker will also have to make fixes on its diesel-powered vehicles sold over the past five years in the United States.

According to Reuters, newer models will likely only require a software update to fix the problem, but older vehicles might also need some new hardware to become compliant.

For the year, VW reported sales fell 4.7 percent to 349,440 vehicles in the U.S.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.