VW Has a (Value) Proposition for You

I’ll admit going into Volkswagen’s second fleet preview event (I missed the first one) that I hadn’t been keeping up on VW as much as I should have. Surveying the room full of fleet managers and rental executives, I wasn’t alone. Such is the consequence for an auto manufacturer who is the second largest in the world and a global fleet player, yet seen as a niche automaker and is new to fleet in the U.S.. But that is changing, and fairly quickly.

During the event, near its U.S. headquarters in Herndon, Va., the automaker announced its ambitious — though controlled — plans for growth in fleet. “We have an emphasis on growth in the U.S. and a commitment from Germany to get us where we need to be in North America,” said Thomas Meuser, general manager, fleet sales & remarketing, VW North America.

Numbers
Globally, Volkswagen Group’s goal is to sell more than 10 million units by 2018. The manufacturer sold 8.2 million units worldwide in 2011, second only to General Motors. VW increases in share and units sold in the past year beat auto industry average increases almost everywhere in the world, including the U.S., where it sold 324,400 units in the 2011 calendar year.

Volkswagen projects growth in U.S. market share to get there. In 2009, its market share was 2.1% in the U.S. and that will grow to 3.3% in this calendar year. The goal is a 5.3% U.S. market share by 2018.
Fleet will play an important part of that growth, VW says, and that includes a projected growth in fleet sales compared to retail. In 2011, fleet sales constituted 6.5% of total sales in North America. That share will grow to 8.6% in 2012, and is projected to make up 9.2% of total sales by 2018, a comfortable landing point for percentage fleet/retail mix moving forward.

VW’s fleet sales will stay predominantly in rental in North America in the coming years, though that share will shrink in favor of commercial fleet. In 2011, rental constituted 89.6% of the fleet sales pie, though that share is projected to moderate to 76.5% by 2018.

Value Proposition
All this growth is first and foremost based on product, and again I’ll admit to unfamiliarity and latent impressions of VW’s “econobox” era. That notion was quickly and thoroughly dispelled in three days by talking to fleets that use VW products and by squealing the tires at Summit Point Raceway.

Commercial fleet managers talked up VW’s strong total costs of ownership (TCO), and they raved about the fuel savings, especially with the TDIs, which were returning real-world miles-per-gallon numbers that beat listed fuel economy averages. In rental fleets, customers request them.

A word on diesels, one of VW’s strong points: For light-duty vehicles, diesels offer great value retention, and there aren’t many options that can offer the same return. Some 30% of Jetta’s (VW’s “bread and butter” for fleet) production volume is for the TDI diesel model. That diesel volume is about the same for Passat. Per EPA, annual fuel cost for the Passat gas engine is $3,850 at 15,000 miles per year and $3,000 for the Passat TDI. That fuel savings would be even higher for some high-mileage fleets, and the initial diesel premium would be paid back in retained value down the line.

In terms of retained value, Volkswagen had Ricky Beggs of Black Book on hand to compare VW’s residuals to other models and segment averages. Volkswagen models were uniformly higher in retained value. This is a necessary distinction for VW because its MSRPs are 5-10% higher than its competitors. VW reiterated one of our mantras in our fleet publications — consider total cost of ownership, not just initial cost.

Strong residuals are based on good products, but there are other factors at work as well. Compared to other manufacturers, a greater percentage of new VW vehicles are retail leases — more than 30% in 2012 — and the remarketing risk is shared equally between VW and VW credit.

Also, Volkswagens don’t end up at auction in the same volume as previous years. In 2008, for example, VW experienced 46,000 off-lease maturities and sent 41% of those to auction. By 2011 there were 57,000 off-lease vehicles and only 13.4% went to auction. In May of this year, only 4.4% went to auction.

Products
If it wasn’t such a hot day on the track I would have requested driving gloves, a scarf and a tweed driving cap, because these vehicles are made to be driven.

The Passat V6 SEL Premium ($34,365 all in) is a great looking car, understated but classy, with great power and sweet, smooth acceleration and good fuel economy (20/28) for a V6.

I drove a loaded Jetta GLI ($28,040) which had VW’s ubiquitous 2.0L turbo that is good for 200 hp and still delivers fuel economy of 24 city, 32 highway. The suspension proved tight and firm on the road course and I managed to get some satisfying tire squeal over the small hills and bumps.

On the track I finished with the Golf R, and all I can say is I’m glad my dad taught me how to drive a stick in the church parking lot. It’s all that.
At the “skid pad experience” we got a firsthand test of VW’s traction control system, ESP. The system can be turned off, allowing “real drivers” the ability to go into a greater skid, yet the system still applies the brakes. Incidentally, all safety features on all VW models are standard — there are no safety options.

All VW models have electronic, variable assist steering, which allows for easy steering at low speeds and when parking, without any hydraulic pump pushback. Yet at high speeds the electronic assist dials back, letting you feel road without numbly overcompensating.

At the product walkaround, I was struck by how VW models, especially the fleet-centric ones, are unexpectedly spacious. Both the Jetta and Passat have ample second row legroom. The Jetta trunk has 15.5 cu. ft. of cargo space, the most in the compact sedan segment. The Passat can hold 15.9 cu. ft. of cargo, near the top of the midsize segment. You may not find all the storage cubbyholes that some other OEMs’ models offer, but VW still finds room for full-size spares in all its vehicles.

The Jetta Sportwagen presents a compelling value proposition for fleets. There’s 66.9 cubic feet of space with the rear seats folded flat, which should hold a week’s worth of pharmaceutical demos and then some. Fold the back seat up and you’ve got seating for the whole family on the weekends. Combine that with 29 mpg city/39 hwy with the TDI, and the TCO-to-functionality value proposition is hard to beat.

View photos here.

This and That
• The event kicked off with dinner at the Smithsonian Air and Space Museum annex next to Dulles Airport. Jonathan Browning, president and CEO of Volkswagen Group of America, was on hand to kick off the festivities. We dined, literally, under the wings of the space shuttle Discovery. The proud bird is only two months into her retirement, and she certainly looked as if she could use the rest.
• VW has an international bonus agreement for large international fleets, over and above local incentives. European companies with U.S. subsidiaries are ready to take advantage of this, I learned.
• Nine VW models qualify for Insurance Institute for Highway Safety’s (IIHS) Top Safety Picks.
• The current generation Beetle is only the third. Amazingly, the first generation lasted from 1938 to 2003 (in other markets). The second generation was from the 1998 model year to 2010.
• The name Tiguan is a combination of tiger and iguana.
• A police force in a small town in Tennessee uses the Passat as a patrol vehicle. You’d figure they’d be open to giving it a shot, for what VW’s Chattanooga assembly plant has done for the local economy.
• The year-old Chattanooga assembly plant is cranking out Passats at a pace of 130,000 units right now, and VW intends to increase output to 160,000 units, with the majority to be sold in the U.S. and Canada. There is room to expand and perhaps add another vehicle line, though VW has not announced any firm plans.
• New car sales should shake out at more than 14 million units this year, which should grow to 16 million by the 2015 calendar year. Ricky Beggs was asked if the OEMs would return to damaging market share wars, such as those in the last decade. “I think they will stick to their guns because they have better control of their manufacturing,” Beggs replied. “I don’t think you’ll see those crazy incentives in the years ahead.”

Originally posted on Business Fleet