VW wants to be the largest car company in the world. It already has strong presences in the EU, much of South American, and Asia–particularly China. The US is the one market it will have to conquer to pull ahead of Toyota Motor (NYSE: TM) and GM (NYSE: GM) to take the No.1 global position. That goal will be nearly impossible to reach.
“Volkswagen AG extended Chief Executive Officer Martin Winterkorn’s contract by five years, giving the executive the time to complete a merger with Porsche SE and surpass Toyota Motor Corp. as the biggest automaker,” Bloomberg reported. The board should not have bothered.
VW has three problems in the US market. The first is that its market share is extremely low and has been for some time. The company has 2.1% of the market in America. Light vehicle sales in the US totaled 11.58 million in 2010.
Second, VW cars have a poor perception among US consumers. The Consumer Reports’ 2011 Car Brand Perception Survey rates VW among the bottom ten brands with Mitsubishi, Izuzu, and Suzuki. Buyers pay close attention to this analysis because Consumer Reports is considered a disinterested third party research firm. The brands that do well in the study are also among the best selling cars and light trucks–Chevrolet, Honda (NYSE: HMC), Toyota, and Ford Motor (NYSE: F).
Lastly, VW will have to compete for share in the relatively low-priced end of the US market. That segment not only has entrenched brands. It is also a part of the industry which is being aggressively attacked by the Big Three as they attempt to diversify beyond their SUV and light truck bases. Perhaps most troubling for VW, the car company which is growing the fastest in the US–Hyundai–has taken very large portions of this segment which makes it even more competitive.
VW had its chances in the US. It let its early lead in the small car market slip away thirty years ago. It let Chrysler be sold to Fiat, unions, and the government. A purchase of Chrysler would have given VW nearly 10% of the American market and a large dealer network.
America will be Martin Winterkorn’s Waterloo.
Douglas A. McIntyre
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