Volkswagen’s Key to the U.S. Market: A New SUV?

Although its Chinese and European operations have been showing meaningful growth, Volkswagen (VLKAY.PK) has been seeing some troubling trends with its American operations, which have been underperforming largely due to its namesake brand amid heated and fierce competition (though Audi and Porsche continue to do fairly well).

This is especially problematic for the company at the current time, as it’s chasing the title for world’s largest automaker, a distinction that both General Motors and Toyota are hoping to grasp, as well. But while those companies have initiated widespread redesigns for some of their most significant vehicles, Volkswagen’s understated, simple aesthetic hasn’t been resonating as much with American buyers. Through April, VW’s U.S. sales slid about 10 percent.

“The Americas are a significant cornerstone of the 2018 strategy,” Chief Executive Officer Martin Winterkorn was quoted as saying in a statement from a meeting in Germany. “We want to and we must grow there substantially and profitably.”

Given Americans’ affinity for large cars, the strategy calls for a new midsize sport-utility vehicle, perhaps one based on the CrossBlue concept that has been making the rounds at various auto shows. It’s designed to go head-to-head with the likes of the Honda Pilot, Chevrolet Traverse, and Ford Explorer.

Source: Volkswagen

Volkswagen already sells the Touareg in the States, which by and large is a great vehicle (it even has a TDI diesel version, too). But it’s expensive, starting at over $44,000 and only heading north from there. The Honda Pilot, meanwhile, starts at under $30,000, and the Ford Explorer, just a hair over. So while the Touareg is a great, capable, and all-around solid-performing vehicle, it’s priced at about $15,000 more than the segment that Volkswagen is hoping to play in.

While crossover SUVs have seen huge leaps and bounds in the U.S., Volkswagen’s Tiguan has largely sat out. The Audi Q5 continues to do exceptionally well, though, leaving Volkswagen’s core brand alone to struggle. It’s easily apparent that much of VW’s domestic strength is derived from its compact cars like the Jetta and the Golf, and buoyed by the performance-oriented GTI and GLI models. But when it comes to carrying lots of people, Volkswagen’s offerings either fall up short or become prohibitively expensive, like the Touareg.

Another industry that Volkswagen notably doesn’t compete in is the American pickup market, though not because it doesn’t have a horse in the game. VW sells the Amarok small pickup in a number of international markets, which if brought to the United States could provide a worthy adversary to the likes of the Nissan Frontier and the Toyota Tacoma, as well as the upcoming Chevy Colorado and GMC Canyon — especially if equipped with VW’s excellent 2.0 liter TDI engine. The small pickup market exists in the U.S., but demand has pushed automakers to value larger and heavier trucks that many people just don’t need.

Volkswagen has the tools necessary to succeed in the U.S., but it just needs to apply them properly. A new SUV would be a good start, but Volkswagen has limited its exposure to only a handful of select models that do not arm it appropriately to compete with the full lineups of the major automakers taking advantage of America’s auto sales boom.

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