Volkswagen CEO Herbert Diess has explained that the automaker would very much like to get back in to the United States’ good graces now that it has cut ties with Russia. With the future of Europe looking shaky, VW is hoping to maintain its position as the best-selling brand in China and start making inroads in America after burning a few bridges there.
Despite the Dieselgate scandal being seven years in the rearview mirror, the automaker is still coping with the resulting financial penalties and the resulting decision to scale back its U.S. aspirations a tad until its electric models hit the road. But the company has always had an issue understanding what American drivers wanted, resulting in boom and bust phases for the company until it manages to solve the puzzle. The most common issue was an inability to adhere to ever-changing emissions standards. But there are also periods where the manufacturer was snubbed for offering subpar electrical equipment or simply having a lineup that was out of sync with American tastes. But Volkswagen has historically enjoyed a resurgence after making the necessary changes and Diess is hoping for another comeback.
After enjoying a whopping 467,408 U.S. deliveries in 2012, VW rapidly began losing its share of the market. The emissions scandal only made things worse and the automaker failed to gain any ground until 2017. Unfortunately, subsequent growth has been slow and the business has had trouble garnering more than 360,000 sales in a single year.
“I think we didn’t take the US customer seriously enough. We tried to sell the European product here in the U.S.” Diess told 60 Minutes in a recent interview. “We have to become relevant in the U.S. And we are in the right way.”
According to the segment, the “right way” involves electrifying everything in its lineup and making sure its plant in Chattanooga, TN, likewise makes the transition. The factory will soon be producing the battery-electric ID.4 crossover, which VW thinks will be the EV that resonates best with American consumers.
But there are still headwinds to contend with. Americans have expressed less interest in EVs than car buyers in other developed nations and VW still has to sell combustion vehicles at healthy volumes to rationalize its status as the world’s largest automaker by revenue, second-largest by sales, and third-largest by market capitalization. It’s also enduring a lot of the same economic pressures as its peers, if not more so. Volkswagen was one of the first businesses to shutter factories in Russia this year and was forced to stall numerous assembly lines in Germany as a result — not that things were going swimmingly beforehand.
While the war in Ukraine has indeed impacted the global economy and complicated international trade, it’s also become a popular scapegoat for businesses and governments that were seeing problems prior to the conflict. Truth be told, the automotive sector was already in trouble before a single Russian boot touched Ukrainian soil. The industry entered into 2022 coping with inflation, supply chains that had not yet recovered from two years of COVID restrictions and chip shortages, and studies were showing that general productivity was on the decline pretty much everywhere on the planet.
Meanwhile, Volkswagen saw IG Metall threatening a labor revolt based on what it claimed was lopsided compensation for executives and shareholders while workers simply had to watch the wealth gap widen. The union had likewise grown annoyed with the company’s decision to prioritize all-electric vehicles, saying they would result in fewer factory jobs. As currencies started losing their value, line workers demanded a wage increase and finally got their wish in April of 2021.
However, VW kicked off 2022 with Diess suggesting further complications would “lead to huge price increases [and] scarcity of energy and inflation.” Shortly thereafter, the business announced that the situation with Russia had made it exceedingly difficult to continue operations in Europe as if everything was normal and would be instituting a new plan that placed a greater emphasis on China and the United States. We know that the automaker was having trouble procuring electrical components and basically stopped receiving wiring harnesses once the war broke out in Ukraine. But Volkswagen Group had also spent the last few years coping with chip shortages and absentee components anyway and botched the launches of a few key products (e.g. Golf and ID.4) before Eastern Europe went into battle mode.
It would be easy to frame VW Group’s recent messaging as little more than an effort to relax investors during a period of economic uncertainty, and there’s certainly some of that taking place here. CEO Diess undoubtedly wants to present a brave face for its troubles in Europe while making sure its biggest market (China) understands it will not be abandoned. The company is attempting to convey something similar to the United States, which is backed up by promises of increased localization and additional investments in Chattanooga. That entails a very real $7.1 billion dollar investment to set the stage for 25 new electric models it wants to sell in the U.S. by 2023.
[Image: Volkswagen Group]
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