VW dealers worry automaker may give up on growing U.S. sales

Contributed photo / VW plans to assemble a new SUV in Chattanooga late this year based on its Crossblue concept. When it was introduced in 2014, the SUV had a plug-in hybrid drivetrain, with a clean diesel engine, 2 electric motors and automatic transmission.
Contributed photo / VW plans to assemble a new SUV in Chattanooga late this year based on its Crossblue concept. When it was introduced in 2014, the SUV had a plug-in hybrid drivetrain, with a clean diesel engine, 2 electric motors and automatic transmission.

The head of Volkswagen's dealer council in America said Friday he's hopeful the automaker will keep its strategy to sharply grow sales in the wake of the diesel emission scandal.

But Alan Brown, a partner in a Texas dealership, said he and a group of other dealers are traveling to VW's headquarters in Germany next week to make sure that "everyone is on the same page."

"We've made an incredible investment in Chattanooga," he said. "It has such huge capacity and the opportunity to go big and go against Toyota and Honda."

Brown confirmed reports that Herbert Diess, global chief of Volkswagen AG's namesake brand, sounded out U.S. dealers at the Detroit auto show in January whether VW should stop trying to compete with volume producers such as Honda to focus on higher-end models.

"It raised some eyebrows," he said.

The dealer angst comes a couple of days after Michael Horn, who was Volkswagen Group of America's CEO, left the company.

"We're hopeful and optimistic we're going to have a good dialogue [in Germany] about keeping the volume strategy in place that Horn worked to accomplish," Brown said.

An automotive analyst said Friday it's hard to believe VW will abandon its investment here, but it's possible the carmaker could curtail efforts to grow sales.

"Certainly, they're up against a tough circumstance," said Karl Brauer, senior director of insights and senior editor for Kelley Blue Book.

VW has admitted it intentionally deceived regulators about the amount of pollution that more than a half-million of its cars are emitting in the United States. It faces potentially tens of billions of dollars in fines, penalties and legal costs and VW has yet to come up with a fix for the diesel engine emissions problem that passes muster with U.S. regulators.

Jeannine Ginivan, a Volkswagen Group of America spokeswoman, on Friday declined to comment on dealer sentiment.

VW officials at the Chattanooga production plant have consistently said since the emission scandal became public last September that its $900 million Chattanooga plant expansion is ongoing and it plans to start making a new sport utility vehicle later this year.

Sybil Topel, the Chattanooga Area Chamber of Commerce's vice president of marketing and communications, said any VW strategy change "is speculation at this point."

But Helen Burns Sharp, a citizen activist with the Accountability for Taxpayer Money watchdog group, said Volkswagen's situation raises concerns about local incentives given to VW to build and expand its plant. She said the incentives don't have adequate clawbacks, pr ways to recoup money, if the carmaker doesn't meet its commitments.

"We gave them $52.5 million in grants from the city and [Hamilton County]," she said. Then, Sharp said, the city and county made generous property tax breaks to several VW suppliers with inadequate clawbacks.

"In the remote chance VW doesn't hire as many employees or invest this amount, what do we expect to get back?" she asked.

Sharp said state incentives appear to have better clawback language in the incentives agreement with VW.

Brown said it's not like dealers are asking something new for VW to go to volume sales.

"I feel like we're poised and ready to make that leap," he said.

Brown said the VW dealer network in the U.S. has made more than $1 billion in investments.

"Chattanooga is supporting us to produce high-quality product at a high volume," he said.

VW closed a Pennsylvania plant in the 1980s amid product and union issues. Brauer said that in the 1990s, he understands the company was one meeting away from pulling out of the U.S. market.

But he said the company stayed and it had seen "positive momentum" until the emissions scandal.

Brauer said VW sales last year were basically flat when the rest of the automotive market in the U.S. grew 5.7 percent.

"I'm sure it's frustrating to [dealers]," he said.

Volkswagen said Friday that its global sales were 1.2 percent lower in February than a year earlier, with higher deliveries in Europe offset by drops in the U.S., South America and China as it grapples with its emissions-rigging scandal.

The company said the Volkswagen Group, whose brands include Audi, Skoda and Porsche, delivered 693,300 vehicles last month. That compared with 701,500 a year earlier.

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

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