Posted by
Ed Lilly on Friday, February 08, 2008 11:25:00 AM
Another story that caught my eye yesterday in the USA Today was a small blurb, with accompanying photo [ed. - you'll have to wait for the link - indulge me with the setup, you won't be disappointed], about Volkswagen finally making a comeback in the US minivan market. I know, you're probably thinking, "Whoa, they're finally ready to put the redesigned Microbus on the market?! Cool!"
Not quite. Let's travel back to 2001 when the "retro" Microbus concept was unveiled at auto shows. Having spent a lot of hours and traveled a lot of miles in VW Microbuses in my youth, I was very excited to think that the engineers at VW had decided to do for the Microbus what they had done for the Beetle. Sure, the new Beetle is a far cry from the real thing that was my introduction into driving, but at least it looked interesting and fun and had some personality. While I still yearn for an air cooled, rear mounted engine design in the new model, I can appreciate the nod to history in the new design.
So, what about a redesigned Microbus? In a word, awesome. Check out these links to photos and write-ups. Especially check out the Motor Trend story. Here's the bottom line from Motor Trend on the reaction to this proposed vehicle:VW's Microbus Concept stole the hearts of everyone who attended the North American International Auto Show in Detroit-not an easy task, as nearly every manufacturer served up at least one "world debut" concept vehicle. But the talk of the show floor, among media and the public alike, was, "Didja see that totally cool VW bus?!"
Even my lovely bride, who is part of the women's automobile market that hated the idea of ever driving a minivan, agreed that, when VW put that baby in showrooms, I was cleared hot to dump whatever I was driving at that point (most likely it would have still been my 1997 Jeep Grand Cherokee at that time) and bring home a Microbus.
So what happened? VW delayed the model, and eventually scrapped it in 2004 or 2005. The Wikipedia entry on the Microbus Concept indicates merely that it was cancelled in 2005, but I have found this article from May, 2004, indicating the project had been at least significantly changed enough that the Microbus was being seen as cancelled at that point. Here's the summary:Volkswagen AG has announced that they have decided not to pursue the current direction with the planned retro-styled Microbus due to costs and market conditions. With the Microbus being primarily targeted at a highly competitive and price sensitive minivan market in the US market Volkswagen is finding it difficult to price the Microbus competitively. The Microbus was planned to be built in Hanover, Germany on the T5 Eurovan platform which further added to the high costs of production. Most minivans in the US market are built on car platforms where shared components can keep costs low and give consumers a vehicle with more car-like characteristics. Volkswagen's decision to build the Microbus on a commercial truck platform in Hanover was driven primarily by a labor agreement which put the project on uneven footing from the onset.
At this point in an effort to try and keep the labor agreement intact, VW has announced that they plan to still build some type of van with "emotional" styling that can be sold in the U.S. and in the European market giving the vehicle a broader market base. Volkswagen isn't disclosing a lot of details about this "new" van, but has clarified that it won't be a retro-styled Microbus as pictured above. Will Volkswagen offer something like the current T5 Eurovan again or will it be more similar to the Sharan sold in Europe. Time will tell as VW has committed to bringing the vehicle to market in 2007.
Huh. So VW was still promising something with "emotional" styling to be sold in the US. From the enthusiasm in the Motor Trend story above, it sounds like their concept vehicle was certainly on the mark as far as "emotional" styling and the reaction it earned from attendees at the 2001 car shows.
So what has VW now come up with for the US market that is going to generate this same kind of excitement, nostalgia and overall "wow"? Hold on to your hats:CHICAGO — Volkswagen is returning to the U.S. minivan market that it pioneered in the 1950s with its flat-nose, rear-engine Transporter (aka Microbus). Instead of a retro van, however, VW will sell a modified Chrysler minivan.
Yes, you read that correctly. It's a Chrysler minivan with a VW emblem slapped on the front. And it gets better. Here's the response from an industry analyst from the story announcing the new vehicle:"They would have been better off with the Microbus," says Rebecca Lindland, director of the auto group at forecaster Global Insight. She expects sales to be about half VW's projection but notes the Routan does give the brand's loyalists a VW for their family years.
Not exactly a breathless, "Didja see that totally cool VW bus?!"
And this analyst is cutting VW's projected sales in half right out of the gates. How many vehicles are we talking? From the story:The automaker hopes to sell 45,000 the first year, a big number for VW in the USA.
All right, VW thinks it can sell 45,000. The analyst, Ms. Lindland, calls it half that. Even if it's somewhere in the middle, will this be a success for VW? Let's go back to the story on what the brain trust in Wolfsburg is saying about their company's efforts in the US automobile market:"The USA is a critical factor in our global strategy," VW board member Ulrich Hackenberg said. "We can't be a global player without having a larger presence in" the USA.
Yes, larger presence. Always important in an industry like this. So what is VW's presence in the market now? Immediately after the above comment from Herr Hackenberg, we get this:VW's share of U.S. new vehicle sales is 1.4%; its Audi brand has 0.6%, says Autodata.
1.4%. All right. How big is the pie? Well, the Department of Transportation's Bureau of Transportation Statistics gives us some idea. The latest data, for 2005, show total new vehicle sales and leases of passenger vehicles (I'm excluding light trucks as minivans are considered passenger vehicles) were 7,667,000. That puts VW's total number of sales and leases in this segment at 107,338 (1.4%).
Now, with crude crunching of numbers and assuming the same number of overall new vehicle sales and leases, if VW sells 45,000 Phaetonvans, they would have 152,338 new vehicles on the road, for a whopping 1.99% of the US market.
Alternatively, if Ms. Lindland is closer to the mark with a guess at 22,500 Phaetonvans, VW winds up with only 1.69% of the US market.
Doesn't sound like a huge uptick for VW to me, but I suppose depending on how you look at the numbers, it may be significant. For instance, there are apparently 596 VW dealers in the US. So if they sell 45,000 Phaetonvans, that's approximately 75 per dealer during a calendar year. That's just about 6 vans a month. Dealers may not be too unhappy with that. I don't know what the economics and financial structures are for a new car dealer to be able to tell how many vehicle sales per month would be profitable.
But if sales are closer to Ms. Lindland's estimate, moving Phaetonvans out the doors at the clip of about 3 per month, I would guess the dealers would not be very happy. So is it possible that the difference between selling 3 and 6 minivans per dealer per month in the US is critical to Volkswagen's global strategy? Seems like an awfully small margin for error overall.
In any event, it looks like I won't be bringing home a new Microbus anytime soon, if ever. My expectation is that the new VW branded Chrysler will be a dud as well. Honda and Toyota are already chewing up the minivan market. VW's only hope to shake things up would have been to go full bore with the retro Microbus. Instead, they'll likely limp along for a few years as they sell off their accumulated stock of Canadian-made Phaetonvans, and then cut their losses.
My dad and I have talked many times about the decisions businesses make. He's been successful running a family-owned small business that is now over 100 years old. It's evolved over the years and would be perhaps be only partially recognizable to my great grandfather who started the business. But it's still plugging along.
When we see the movers and shakers at big companies like the auto manufacturers, multi-billion dollar banks, pharmaceutical giants, and other high tech businesses, our assumption is that these people must know what they're doing. They play for big stakes, in fiercely competitive markets, against players from all over the world.
But somehow, they still come up with New Coke. And Phaetons. And expansions, acquisitions, or mergers that get reversed in short order.
Something tells me that all VW had to do to figure out how to be a global player with a larger presence in the US market would have been to conduct the following market research: Put up promotional material in its 596 US dealers and have customers vote on which of the two minivans they wanted VW to bring to market. My guess is the vote would have been about 95 - 5 in favor of the Microbus. But I guess I'm no Ulrich Hackenburg.