Volkswagen burnishing the brand amid scandal

First you have to solve everything going on with the diesel. You can't rebuild [your image] until you solve your issue.

Contributed rendering / Volkswagen's Budd-e concept has a zero-emission electric drivetrain. It was first shown at January's Consumer Electronics Show in Las Vegas and later at the North American International Auto Show in Detroit.

Volkswagen spent a lot of time at the Detroit auto show last week apologizing for its diesel deception as it struggles to find a fix regulators will accept for its stricken vehicles in the U.S.

But analysts said that what VW did right last week at North America's biggest auto show was to reinforce its commitment to the Chattanooga assembly plant expansion and its planned new sport utility vehicle.

"That was a good move," said Jessica Caldwell, Edmunds.com's director of industry analysis, on efforts by VW to rebuild its image. "[The diesel scandal] has been a setback for them but one they can recover from."

Stacey Doyle, an industry analyst for TrueCar.com, said that VW bolstering its $900 million plant expansion and the midsize SUV showed that officials have confidence the car company will rebound.

"They want to instill confidence with employees and consumers," she said. "That definitely makes sense."

VW has a lot of SUV product in the pipeline for the U.S. market, including the midsize Chattanooga model based after its CrossBlue concept on which production is to start late this year.

Akshay Anand, a Kelley Blue Book analyst, said a lot is at stake for the German car company in America.

"It's especially critical for VW to figure out what it needs to do with the crisis and get it behind them," he said.

Caldwell said she doesn't think VW can truly craft a new image until the diesel fix is approved and announced. The effort has taken too long, she said, even longer than the crises which hit Toyota and General Motors in recent years.

"That there isn't a fix yet is shocking," Caldwell said, adding that the issue continues to linger.

She said officials for the automaker talk about moving more toward producing hybrids in the future.

"First you have to solve everything going on with the diesel," Caldwell said. "You can't rebuild [your image] until you solve your issue."

But getting the right fix that regulators will approve has so far proved elusive for VW. Last week, California regulators rejected a proposed software repair, and VW failed to gain approval from the Environmental Protection Agency that will restart the sale of diesel vehicles in the U.S.

Five months ago, the EPA and California Air Resources Board notified Volkswagen that certain diesels vehicles didn't comply with emissions regulations.

VW later admitted to using a piece of engine software to cheat on diesel car emissions tests in the U.S., where authorities say there are about a half-million affected vehicles. The company says that up to 11 million vehicles worldwide were fitted with the engine in question.

In the months before last September's revelation, nearly a quarter of VW sales came from diesel sales. VW's Chattanooga-made Passat diesels represented about 29 percent of the sedan's U.S. sales, according to Kelley Blue Book.

VW put a stop sale on the affected diesel vehicles and Passat sales have plunged over the past couple of months, falling 56.4 percent in December alone from a year ago.

Last week, top VW officials, including CEO Matthias Mueller, said they're standing by the current Chattanooga plant expansion, which includes hiring 2,000 more employees over the more than 2,400 who work at the factory now.

Doyle said SUVs are highly popular now especially with low gasoline prices.

"It's a smart move within their portfolio to focus on utilities," she said.

Caldwell said VW is one of the biggest car companies in the world and the diesel-emission scandal won't put them out of business.

"Building an SUV in the U.S. is a good way to go," she said. "As long as gas prices stay low, it still makes sense."

At the auto show, VW took advantage of just about every public event to issue an apology for the diesel mess, said Caldwell. But, she said, it may take awhile for VW to rebuild trust.

"American consumers have memories that are pretty short," Caldwell said. "But the fact that this has lingered so long."

VW has taken steps to solidify its image with existing diesel owners and its dealer network.

The Wall Street Journal reports the company is ready for another so-called "goodwill program" that will be worth more than $1,000 to owners of 3-liter diesel engine vehicles. In November, a similar package of cash and credit was aimed at owners of 2-liter vehicles.

"It's rebuilding that trust," Doyle said. "They know consumers already like their brand. It's a strategic move."

Also, the company is offering dealers "customer satisfaction bonuses" and other programs.

"Dealers are going to play an integral role in rebuilding their brand," Doyle said. "They want to keep them happy. The rest of the lineup is solid."

Caldwell said the last several months have been tough for dealers, noting they have no control over the situation.

"They're left on the front line without a fix," she said. "It's good not leaving them out of the equation."

In the future, Caldwell predicted consumers will see more incentive spending by VW on vehicles. She said VW has usually attached premium prices to its vehicles. By offering more incentives, VW prices will be more in line with Nissan, Toyota and Honda, Caldwell said.

"That will help the brand," she said about VW. "They'll try to keep market share."

Contact Mike Pare at mpare@timesfreepress.com or 423-757-631