Volkswagen’s U.S. dealers feel like their lineups will finally be equipped to conquest sales in the U.S. market and increase the German brand’s market share this year when the gasoline-powered Taos and electric ID4 compact crossovers arrive by midyear, the new chairman of the Volkswagen National Dealer Advisory Council said.
Tom McMenamin, 45, owner of Toms River Volkswagen in New Jersey, said the brand has the opportunity to grow significantly this year with the new additions, along with renewed interest in the five-seat Atlas Cross Sport, which launched last March amid the pandemic. However, to hit on all cylinders, the brand must continue to improve its marketing and incentive strategies and ensure that dealers get the right mix of vehicles for their markets.
McMenamin, whose dealership sold about 1,650 new vehicles and 600 used vehicles in 2020, spoke with Staff Reporter Larry P. Vellequette. Here are edited excerpts.
Q: What are your priorities as council chairman?
A: My first priority is to build communication between the brand and the dealer body, and along with that communication, I want simplification. That means if we can simplify things, whether it be incentives or model breakdowns, I feel that we will be able to be more profitable and we’ll be able to do bigger things in 2021.
The other three things that I really would like to focus on are vehicle supply, vehicle incentives and marketing. We need to be able to build the right cars, and not just build them, but make sure that those vehicles get delivered to our dealerships in a timely fashion. And we need to have a marketing plan to be able to let the consumer know the vehicles are here, what products we have, the great new lineup that we have. And we need to incentivize that, so that if we have the product that gets shipped, the marketing that tells the customers that we have the product and the incentives to allow us to sell the product to our customers. And we need to boost conquest as well.
What’s the issue with the incentive structure?
What they do is, a lot of times they’re incentivizing the wrong vehicles because we have the wrong mix, and what happens is, if we had the wrong mix in stock, we’re doing everything we possibly can to sell what we have in stock, cutting into margins. But when [factory reps] look at it, they see that we’re selling more [upper trims], but they don’t see that we sold those at a discounted price, so our gross was lower. If we just had the right model, we’d be able to capitalize and make money and sell the right car, so we really need to get our production in line. Once that production is in line, you know, it’ll be great.
What was 2020 like for VW dealers?
Well, of course, not only was there a pandemic, but 2020 was also a presidential election year, and that causes a lot of uncertainty. There were a lot of people out there who just didn’t know where we were heading as a country. But now a decision’s been made, we know where we’re heading and we know what we’re doing.
As a brand, we had shutdowns, both at the factories and with the advertising that was pulled, and that kind of hurt us. But then we picked up momentum later in the year, and I want to keep that momentum going.
The one thing that I think we have this year at Volkswagen is momentum, because we have two new vehicles that are coming out: the ID4 and the Taos. Plus we have a full year of Atlas Cross Sport. Just those three vehicles alone should put us over the top this year, and I really feel good about it. By midyear 2021, VW will be a five-SUV brand, which is a long way from where we were even five years ago. We’re finally here, and I think 2021 will be a fabulous year for VW dealers.
How did VW help dealerships navigate the changes brought about by COVID-19?
Volkswagen really did a great job for their dealers. They not only helped us out with expenses, they came forward and helped us with implementing digital retailing, putting us together with two companies that allowed us to get up and running quickly. They also guaranteed some [sales] incentives for us, and they guaranteed us our co-op advertising dollars. Typically, you would spend $400 in order to get $200 per vehicle, but VW said they would lift the restriction and pay us automatically. In addition, they reduced a lot of the fees that they charge us, cut those in half, pulled some off the table. It was really good. They were really in our corner; they wanted us to succeed.
What more do dealers want to see Volkswagen do?
We need them to come through with what they are telling us they’re gonna do, and that is production, marketing and incentives. If we can have them do that, we will be successful in 2021.
We need successful product launches of the ID4 and the Taos, and if we can have successful launches, that will make our dealer body successful.
We also need a successful Atlas Cross Sport campaign, because that car was just coming out in March, and we had a $100 million budget to launch that vehicle, and we had to pull it off the table due to the pandemic, and we weren’t getting product because of the factory shutdown. I’m really super excited to have all three of these vehicles this year.
It’s a run of bad luck for VW. The launch of the Arteon in the U.S. didn’t go well because it got caught up in the new emissions testing in Europe and was delayed. Then the Atlas Cross Sport lands in the middle of a pandemic.
The Arteon is a great vehicle. You look at the Passat, the Jetta, the Arteon — all three are great vehicles and great looking. It’s just the sedan market is not as in demand as it once was, and that’s why it’s so important that we’re going to be a five-SUV brand.
Let’s talk about the ID4. It will start arriving in March, but supply will be limited. How will VW dealers keep customers engaged waiting for this EV?
That is going to be a little challenging, but they are saying that every dealer that’s going to be able to sell them is going to be able to get one as a demo vehicle. So we’ll have one in stock that customers can see, can sit in and drive and just kind of get the feel of it. I think the product is going to be unbelievable, and the preorders are key. You know, if somebody does want one, we’re trying to make sure that they preorder, so the vehicle is coming in and they’re guaranteed that slot. I think it’s going to be a great vehicle. And look, welcome to electrification — we’re now in the game.
VW is coming into battery-electric vehicles ahead of many other brands, which is kind of unusual, right?
Very true. Typically, we’re not the brand to be in the forefront leading the charge, but with this vehicle, we are, and I think it’s going to be a great thing for the brand.
From where do you think the ID4 will conquest?
I think that it’s going to be a new customer. I think right now, you have Tesla. They conquest from every brand. With all of the BEVs that are out, you have customers who come in, take a look at it and buy it. And once they buy it, they stay with it. I mean they love the vehicle, and I think you’re going to see a lot of that with VW.
Will the ID4 cannibalize from VW gasoline-powered vehicles?
You’re going to have a lot of the customers, whether it would be those in a Jetta or a Tiguan, that want to feel good about what they’re driving, feel good about the contribution they’re making for the environment, and I think that’s really where the customer is going to come from. It’s not necessarily going to be, you know, a Toyota Corolla customer or a Subaru customer. It’s not necessarily a brand of car that we’re going to be conquesting; it’s the type of customer that we’re going to be attracting, an environmentally conscious customer.
Will it be difficult to hold onto ID4 buyers while they wait for their cars to arrive? Or are they preconditioned so they know there will be a wait?
I think they already realize that. They know that, “Hey, this is what I’m getting. It’s new. It’s great. Everybody wants it.” And I really feel that people are OK knowing that they’re going to wait for this car. They’re excited to get it and they’re on a waiting list, but the biggest thing for us is constant communication. If we can communicate with the customer and let them know what stage their car is in, and how soon are they going to get it, you can stay connected.
The biggest thing is, if we can stay connected with our customer, they will be fine through this process. If we do not stay connected, that’s when we’re going to lose the customer.
It’s going to be especially hard for dealers to have a true demonstrator that they can’t sell, isn’t it?
It’s very hard when you have that customer walk in and say, “Hey, I’ll take that vehicle. That’s the one I want and I’m willing to pay for it.” As a dealer, you look at dollars and you say, “Hey, what’s the right thing to do?” We typically sell everything we have and at this point, we’ve just got to leave that car there, and hopefully it’s going to get us future sales. That’s the way we have to look at it.
I want to ask about the Taos, which is slotted below the Tiguan in price. Is it just going to be a price play in that segment? If so, what happens to the Tiguan?
Originally, I did have some concerns. That’s a question that we all ask ourselves. But there’s a substantial price jump between Jetta and Tiguan, but I think the Taos is going to come in right in between the two of those, and we’re going to be able to capitalize on that Jetta customer that really wants a bigger vehicle, who wants to get into the SUV market. And I think that’s where we’re going to see most of our sales coming from for Taos.
I think there will be a little cannibalization, but I don’t think it’s going to be huge. And most of the customers for that vehicle are going to be coming from other brands, so it’s going to be a conquest vehicle for us.
With these recent additions, what do you think is still missing from VW’s lineup in the U.S.? What else do dealers want to see?
I’ll tell you, I think we’re hitting on all cylinders, but if you had to say what is missing, the only thing that would be missing would possibly be a pickup truck. When I look at the lineup, I see everything from the Jetta to the Atlas, and we can get into every household and sell that household, no matter what kind of car they’re looking for. But the only thing that we are missing is a pickup truck. That’s it.
Let’s talk about certified pre-owned because VW, like most brands, had a really good year for CPO vehicles in 2020. What has been the experience for VW dealers with the factory’s CPO program?
We had a record-breaking year with CPO in 2020, and I think a lot of VW dealers opened their eyes and realized that their customers coming in want CPO vehicles, knowing that the brakes are good, the tires are good, that it’s been through service and that they’re getting that added warranty with it. I think that’s what has made that program take off.
Don’t get me wrong — there were some supply-and-demand issues at work there. We did have some vehicles, and the value of CPO vehicles were skyrocketing; people were not traveling, so they chose to replace their car and maybe keep a few extra dollars in the bank. I think that really did help us out quite a bit.
And the simplification of the program helped tremendously, too. We simplified the CPO program, made it easier for everybody to understand, which is good because we had some dealers who had been through multiple CPO programs, and it was confusing to their staffs. But now, you know a CPO vehicle is going to come with a 2-year, 24,000-mile warranty. It’s one price. It fits, it works and it’s great. So I think that’s definitely a step in the right direction.