Lengthy NY Times article on VW/Audi problems today
03-18-2003, 08:33 AM
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Lengthy NY Times article on VW/Audi problems today
A Sputtering VW Aims Higher
By MARK LANDLER
RANKFURT - JENS NEUMANN knows how quickly a car company can total its image. He was the chief lawyer for Audi, the sporty German manufacturer, in the mid-1980's, when owners of the Audi 5000 began reporting that their cars sometimes accelerated without warning, with deadly consequences for those unlucky enough to be in the vehicle's path.
Audi's owner, Volkswagen, blamed drivers for confusing the brake and accelerator pedals. That claim was later backed up by an American government study, but the clumsy, insensitive manner in which Volkswagen handled the episode alienated nearly a generation of car buyers.
Last month, Mr. Neumann, 57, found himself back in the soup -- scrambling to prevent a relatively minor technical defect from ballooning into a major public relations blunder for Volkswagen.
This time, it was faulty ignition coils in the engines of many Volkswagen and Audi models produced in 2001, 2002 and early this year. The complaint about Volkswagen was much the same: that it refused to acknowledge a problem until clubbed into it by irate customers and embarrassing news reports.
"I know what it is like to lose the confidence of customers," said Mr. Neumann, who now oversees strategy and North American operations for Volkswagen. "We won't let that happen again."
Mr. Neumann said that by midyear, Volkswagen would have enough new coils to replace those in any car potentially affected by the problem. In the meantime, Volkswagen of America has written to the owners of about 530,000 cars, offering to replace any defective coils.
For Volkswagen, Europe's largest carmaker, it was a tough start to what promises to be a brutal year. Last week, Volkswagen issued a profit warning that caught some analysts by surprise -- less for its timing, given the well-publicized troubles in the company's home market, than for the depth of its gloom.
"Due to profound changes and considerable uncertainty in the economic and political framework," the chief executive, Bernd Pischetsrieder, said, Volkswagen's first-quarter profit will be significantly lower than that of last year. Full-year profit is also likely to fall short of that for 2002.
To some extent, Volkswagen is simply reflecting the malaise in the global auto industry. From the economic shocks in Brazil and Argentina to the stagnation in Germany to the worldwide fear of war in Iraq, there are few places on the map that an auto executive can look for comfort.
Volkswagen, however, has problems all its own, ranging from an aging product lineup to its vulnerability to the rising euro, which increases the prices of its cars overseas. It is also embarking on a bold, risky and expensive campaign to lift its proletarian brand name -- Volkswagen translates as the "people's car" -- into the luxury market.
At the very moment that consumers are squeamish about spending, Volkswagen is rolling out a $40,000 sport utility vehicle, the Touareg, and a majestic sedan, the Phaeton, which starts in Europe at $55,000 and is likely to sell in the United States at $60,000 to $75,000.
With dreams of challenging Mercedes-Benz and BMW, the last thing VW needs is the ignition-coil problem, even if it is unrelated to safety. The trouble is, Volkswagen faces a growing perception on both sides of the Atlantic that its once-vaunted quality standards have slipped.
While American drivers have been fuming about faulty ignition coils, which cause their engines to lose power, the drivers of some Volkswagen subcompacts in Europe have had a problem in which ice blocks an engine hose, causing breakdowns.
Volkswagen now has only one model, the Passat, on the recommended list put out by Consumer Reports. That compares with three last year. It finished below the industry average in a satisfaction survey of German consumers conducted last fall by J. D. Power & Associates, the research firm.
"If you read consumer surveys and reports, Volkswagen's quality and reliability is consistently lower than the public's perception of it," said a senior executive at General Motors, which makes Opels in Germany and Saabs in Sweden.
Volkswagen's outsized reputation may irk competitors like G.M., but perception is a double-edged sword. It took Audi 13 years to rebuild its sales in the United States after the sudden-acceleration fiasco, even though the government exonerated the company in its 1989 study.
The recent reliability problems, and Volkswagen's balky response, could have a disproportionate effect on how it is perceived in the United States. Some owners whose cars had the failed ignition coils -- requiring several trips to dealers -- said they would not buy another Volkswagen.
"Volkswagen did nothing proactive in terms of communication to their customers about this failure," said Pat Navin of Evanston, Ill., whose 2002 Passat station wagon lost power after two of the four coils on the 1.8T four-cylinder engine had failed. The car had just 3,100 miles on the odometer. "It's the head-in-the-sand mentality, in this highly competitive marketplace, that is hard to fathom," Mr. Navin said.
Mr. Neumann disputes that Volkswagen dragged its heels in responding. He said the company would have been wrong to tell customers about a problem before it had enough parts on hand to fix the problem. Volkswagen has scrambled to ramp up production of coils and has lined up a second supplier.
"There are no miracles in the world that it suddenly rains ignition coils from the sky," Mr. Neumann said in the slightly weary tone of a man accustomed to handling indignant dealers and customers.
In hindsight, he acknowledged, Volkswagen should have tipped off customers about the problem rather than letting them read about it in the newspaper. Volkswagen officials first heard reports of defective coils in October, but Mr. Neumann said the company needed time to pinpoint the problem's source. "Somehow, the breaking news and our preparedness to communicate went in the wrong sequence," he said.
As for the broader doubts about Volkswagen's quality, Mr. Neumann said its standards were more rigorous than ever. He noted that Mr. Pischetsrieder, who last year succeeded Ferdinand Piëch as chief executive, oversaw quality control before taking the helm. Before that, he was the chief executive of BMW, the top-rated German carmaker in the J. D. Power survey.
Mr. Piëch, now the chairman of Volkswagen's supervisory board, still casts a long shadow over the company. A passionate engineer who turned around Volkswagen in the 1990's with hit cars like the New Beetle, he also masterminded the company's risky foray into the luxury market. He pushed the Phaeton project, building a spectacular glass-encased factory in Dresden to assemble the cars, and bought two rarefied Italian sports-car makers, Lamborghini and Bugatti. Volkswagen also owns Bentley, maker of the stately English motor car that is used by Queen Elizabeth.
Mr. PIËCH'S dream, loyally articulated by longtime deputies like Mr. Neumann, is for Volkswagen to compete in virtually every segment of the automobile market. It now covers 75 percent of the segments.
Mr. Neumann said the rate of failure of Volkswagen's components had declined in recent years. But because the company uses the same parts in more models, one defect can have a ripple effect. The ignition coils turned up in six VW and Audi models, from the Golf to the Audi A6.
While the problems were most acute in North America because of the size and type of engines affected, they popped up across Europe and even in China, affecting more than 800,000 vehicles in all.
How does Volkswagen explain the spate of poor ratings? Mr. Neumann said the staff of Consumer Reports tested cars randomly bought from dealers. He said some of these might be "Monday cars," a term that refers to cars that might have been built by workers nursing post-weekend hangovers. Mr. Neumann said Volkswagen's actual quality was probably never as high as its peak level in the surveys nor as low as the latest results would suggest. "I don't want to play down quality issues; we have quality issues," he said. "But I want to say that we've addressed them properly."
Preserving Volkswagen's reputation for solid German engineering is crucial for the company, which has used that reputation to build an extraordinarily successful market in the United States during the last decade.
Volkswagen sold 338,000 cars in America in 2002, a sevenfold increase from 1993. Its midsize Jetta is the most popular European car in the United States -- almost as many Jettas were sold in the country last year as the entire annual volume of Mercedes or BMW.
The car that may most symbolize the deep, even sentimental ties that Volkswagen has forged in the American market is the New Beetle; the company has sold more than 400,000 in the United States since introducing the car in 1998. In some ways, however, the car is also emblematic of the company's woes: Last year, VW scaled back production of the New Beetle, which depends heavily on American buyers, by 18.5 percent.
"The fun factor is somehow gone because the mood of people has changed," Mr. Neumann said. "We need more smiles in this world." To do that, Volkswagen has rolled out a convertible New Beetle.
Volkswagen, based in Wolfsburg, an industrial city northeast of Frankfurt, also hopes to expand into the thriving market for upscale S.U.V.'s. The Touareg, which will start at $34,000 with a six-cylinder engine and $40,500 with an eight-cylinder engine, has won enthusiastic notices from the automotive news media.
Dealers, who had been yearning for an S.U.V. to compete with those of other German and Japanese manufacturers, are excited about the Touareg. "We've got a home run here," said Gene Langan, who runs VW dealerships in Glastonbury and Meriden, Conn. "It puts us right where we should be, against BMW, Lexus, Acura and Mercedes."
Mr. Langan is more reticent about the Phaeton, which is scheduled to arrive in the United States at year-end. Available in Europe with various engines, among them a 12-cylinder monster, the car can cost more than $100,000 and is designed to compete with the most deluxe Mercedes and BMW sedans. The German chancellor, Gerhard Schröder, a former Volkswagen board member, uses one as his state limousine.
The trouble is, Volkswagen produced only 3,403 Phaetons last year. Some dealers question whether the company, in aiming at the pinnacle of the market, is stretching its utilitarian brand too far. "We don't have customers who would buy the Phaeton," said Rudy Koch, a dealer in Oberursel, a Frankfurt suburb. "It will take time for people to accept that Volkswagen also sells high-class cars."
For Mr. Koch, the smaller VW's -- the Golf and its even littler European cousins, the Polo and the Lupo -- are the bread and butter of his business. He is wringing his hands because Volkswagen is phasing out the current Golf later this year in favor of a redesigned model. While the new Golf should draw interest, he is discounting aggressively to sell out his existing inventory.
Volkswagen plans to redesign the Passat next year, which could cause another lull in sales as people wait for the new model. These cars will not be introduced in the United States until June 2004 at the earliest.
In the meantime, Volkswagen is vulnerable to the vagaries of the market, not least in its home country. It introduced a compact minivan, the Touran, at the Geneva International Motor Show this month, which it hopes will appeal to Europeans. But overall sales in Germany dropped 4.7 percent in 2002. With the German economy adrift, few analysts expect a rebound this year.
"Consumers, especially in Germany, are just not showing up," said Thomas Aney, an analyst at Dresdner Kleinwort Wasserstein.
Even China is proving to be a mixed blessing. Volkswagen staked its claim there early, and its Santana, a stripped-down version of the Passat, is a common sight in Beijing.
Sales in China rose 42.8 percent in 2002, vaulting it ahead of the United States as Volkswagen's second-largest market. But Volkswagen's share fell to 38.5 percent from 50 percent, as G.M. and others have begun vying for what will be the world's largest automobile market.
Mr. Aney said he believed that Volkswagen's long-term prospects were strong. But shareholders abandoned the company in droves after its profit warning last week. Part of the problem was that Volkswagen did not say much, beyond a general prediction that things would be worse before they were better.
That uncertainty was palpable at the Geneva motor show, where Mr. Neumann found it easier to discuss how Volkswagen planned to replace broken ignition coils than how many cars it hoped to sell.
"If you tell me when the Iraqi war will start," Mr. Neumann said, with a tone of exasperation, "when it will be over, what the business environment will be, I can tell you what my prognosis will be."
By MARK LANDLER
RANKFURT - JENS NEUMANN knows how quickly a car company can total its image. He was the chief lawyer for Audi, the sporty German manufacturer, in the mid-1980's, when owners of the Audi 5000 began reporting that their cars sometimes accelerated without warning, with deadly consequences for those unlucky enough to be in the vehicle's path.
Audi's owner, Volkswagen, blamed drivers for confusing the brake and accelerator pedals. That claim was later backed up by an American government study, but the clumsy, insensitive manner in which Volkswagen handled the episode alienated nearly a generation of car buyers.
Last month, Mr. Neumann, 57, found himself back in the soup -- scrambling to prevent a relatively minor technical defect from ballooning into a major public relations blunder for Volkswagen.
This time, it was faulty ignition coils in the engines of many Volkswagen and Audi models produced in 2001, 2002 and early this year. The complaint about Volkswagen was much the same: that it refused to acknowledge a problem until clubbed into it by irate customers and embarrassing news reports.
"I know what it is like to lose the confidence of customers," said Mr. Neumann, who now oversees strategy and North American operations for Volkswagen. "We won't let that happen again."
Mr. Neumann said that by midyear, Volkswagen would have enough new coils to replace those in any car potentially affected by the problem. In the meantime, Volkswagen of America has written to the owners of about 530,000 cars, offering to replace any defective coils.
For Volkswagen, Europe's largest carmaker, it was a tough start to what promises to be a brutal year. Last week, Volkswagen issued a profit warning that caught some analysts by surprise -- less for its timing, given the well-publicized troubles in the company's home market, than for the depth of its gloom.
"Due to profound changes and considerable uncertainty in the economic and political framework," the chief executive, Bernd Pischetsrieder, said, Volkswagen's first-quarter profit will be significantly lower than that of last year. Full-year profit is also likely to fall short of that for 2002.
To some extent, Volkswagen is simply reflecting the malaise in the global auto industry. From the economic shocks in Brazil and Argentina to the stagnation in Germany to the worldwide fear of war in Iraq, there are few places on the map that an auto executive can look for comfort.
Volkswagen, however, has problems all its own, ranging from an aging product lineup to its vulnerability to the rising euro, which increases the prices of its cars overseas. It is also embarking on a bold, risky and expensive campaign to lift its proletarian brand name -- Volkswagen translates as the "people's car" -- into the luxury market.
At the very moment that consumers are squeamish about spending, Volkswagen is rolling out a $40,000 sport utility vehicle, the Touareg, and a majestic sedan, the Phaeton, which starts in Europe at $55,000 and is likely to sell in the United States at $60,000 to $75,000.
With dreams of challenging Mercedes-Benz and BMW, the last thing VW needs is the ignition-coil problem, even if it is unrelated to safety. The trouble is, Volkswagen faces a growing perception on both sides of the Atlantic that its once-vaunted quality standards have slipped.
While American drivers have been fuming about faulty ignition coils, which cause their engines to lose power, the drivers of some Volkswagen subcompacts in Europe have had a problem in which ice blocks an engine hose, causing breakdowns.
Volkswagen now has only one model, the Passat, on the recommended list put out by Consumer Reports. That compares with three last year. It finished below the industry average in a satisfaction survey of German consumers conducted last fall by J. D. Power & Associates, the research firm.
"If you read consumer surveys and reports, Volkswagen's quality and reliability is consistently lower than the public's perception of it," said a senior executive at General Motors, which makes Opels in Germany and Saabs in Sweden.
Volkswagen's outsized reputation may irk competitors like G.M., but perception is a double-edged sword. It took Audi 13 years to rebuild its sales in the United States after the sudden-acceleration fiasco, even though the government exonerated the company in its 1989 study.
The recent reliability problems, and Volkswagen's balky response, could have a disproportionate effect on how it is perceived in the United States. Some owners whose cars had the failed ignition coils -- requiring several trips to dealers -- said they would not buy another Volkswagen.
"Volkswagen did nothing proactive in terms of communication to their customers about this failure," said Pat Navin of Evanston, Ill., whose 2002 Passat station wagon lost power after two of the four coils on the 1.8T four-cylinder engine had failed. The car had just 3,100 miles on the odometer. "It's the head-in-the-sand mentality, in this highly competitive marketplace, that is hard to fathom," Mr. Navin said.
Mr. Neumann disputes that Volkswagen dragged its heels in responding. He said the company would have been wrong to tell customers about a problem before it had enough parts on hand to fix the problem. Volkswagen has scrambled to ramp up production of coils and has lined up a second supplier.
"There are no miracles in the world that it suddenly rains ignition coils from the sky," Mr. Neumann said in the slightly weary tone of a man accustomed to handling indignant dealers and customers.
In hindsight, he acknowledged, Volkswagen should have tipped off customers about the problem rather than letting them read about it in the newspaper. Volkswagen officials first heard reports of defective coils in October, but Mr. Neumann said the company needed time to pinpoint the problem's source. "Somehow, the breaking news and our preparedness to communicate went in the wrong sequence," he said.
As for the broader doubts about Volkswagen's quality, Mr. Neumann said its standards were more rigorous than ever. He noted that Mr. Pischetsrieder, who last year succeeded Ferdinand Piëch as chief executive, oversaw quality control before taking the helm. Before that, he was the chief executive of BMW, the top-rated German carmaker in the J. D. Power survey.
Mr. Piëch, now the chairman of Volkswagen's supervisory board, still casts a long shadow over the company. A passionate engineer who turned around Volkswagen in the 1990's with hit cars like the New Beetle, he also masterminded the company's risky foray into the luxury market. He pushed the Phaeton project, building a spectacular glass-encased factory in Dresden to assemble the cars, and bought two rarefied Italian sports-car makers, Lamborghini and Bugatti. Volkswagen also owns Bentley, maker of the stately English motor car that is used by Queen Elizabeth.
Mr. PIËCH'S dream, loyally articulated by longtime deputies like Mr. Neumann, is for Volkswagen to compete in virtually every segment of the automobile market. It now covers 75 percent of the segments.
Mr. Neumann said the rate of failure of Volkswagen's components had declined in recent years. But because the company uses the same parts in more models, one defect can have a ripple effect. The ignition coils turned up in six VW and Audi models, from the Golf to the Audi A6.
While the problems were most acute in North America because of the size and type of engines affected, they popped up across Europe and even in China, affecting more than 800,000 vehicles in all.
How does Volkswagen explain the spate of poor ratings? Mr. Neumann said the staff of Consumer Reports tested cars randomly bought from dealers. He said some of these might be "Monday cars," a term that refers to cars that might have been built by workers nursing post-weekend hangovers. Mr. Neumann said Volkswagen's actual quality was probably never as high as its peak level in the surveys nor as low as the latest results would suggest. "I don't want to play down quality issues; we have quality issues," he said. "But I want to say that we've addressed them properly."
Preserving Volkswagen's reputation for solid German engineering is crucial for the company, which has used that reputation to build an extraordinarily successful market in the United States during the last decade.
Volkswagen sold 338,000 cars in America in 2002, a sevenfold increase from 1993. Its midsize Jetta is the most popular European car in the United States -- almost as many Jettas were sold in the country last year as the entire annual volume of Mercedes or BMW.
The car that may most symbolize the deep, even sentimental ties that Volkswagen has forged in the American market is the New Beetle; the company has sold more than 400,000 in the United States since introducing the car in 1998. In some ways, however, the car is also emblematic of the company's woes: Last year, VW scaled back production of the New Beetle, which depends heavily on American buyers, by 18.5 percent.
"The fun factor is somehow gone because the mood of people has changed," Mr. Neumann said. "We need more smiles in this world." To do that, Volkswagen has rolled out a convertible New Beetle.
Volkswagen, based in Wolfsburg, an industrial city northeast of Frankfurt, also hopes to expand into the thriving market for upscale S.U.V.'s. The Touareg, which will start at $34,000 with a six-cylinder engine and $40,500 with an eight-cylinder engine, has won enthusiastic notices from the automotive news media.
Dealers, who had been yearning for an S.U.V. to compete with those of other German and Japanese manufacturers, are excited about the Touareg. "We've got a home run here," said Gene Langan, who runs VW dealerships in Glastonbury and Meriden, Conn. "It puts us right where we should be, against BMW, Lexus, Acura and Mercedes."
Mr. Langan is more reticent about the Phaeton, which is scheduled to arrive in the United States at year-end. Available in Europe with various engines, among them a 12-cylinder monster, the car can cost more than $100,000 and is designed to compete with the most deluxe Mercedes and BMW sedans. The German chancellor, Gerhard Schröder, a former Volkswagen board member, uses one as his state limousine.
The trouble is, Volkswagen produced only 3,403 Phaetons last year. Some dealers question whether the company, in aiming at the pinnacle of the market, is stretching its utilitarian brand too far. "We don't have customers who would buy the Phaeton," said Rudy Koch, a dealer in Oberursel, a Frankfurt suburb. "It will take time for people to accept that Volkswagen also sells high-class cars."
For Mr. Koch, the smaller VW's -- the Golf and its even littler European cousins, the Polo and the Lupo -- are the bread and butter of his business. He is wringing his hands because Volkswagen is phasing out the current Golf later this year in favor of a redesigned model. While the new Golf should draw interest, he is discounting aggressively to sell out his existing inventory.
Volkswagen plans to redesign the Passat next year, which could cause another lull in sales as people wait for the new model. These cars will not be introduced in the United States until June 2004 at the earliest.
In the meantime, Volkswagen is vulnerable to the vagaries of the market, not least in its home country. It introduced a compact minivan, the Touran, at the Geneva International Motor Show this month, which it hopes will appeal to Europeans. But overall sales in Germany dropped 4.7 percent in 2002. With the German economy adrift, few analysts expect a rebound this year.
"Consumers, especially in Germany, are just not showing up," said Thomas Aney, an analyst at Dresdner Kleinwort Wasserstein.
Even China is proving to be a mixed blessing. Volkswagen staked its claim there early, and its Santana, a stripped-down version of the Passat, is a common sight in Beijing.
Sales in China rose 42.8 percent in 2002, vaulting it ahead of the United States as Volkswagen's second-largest market. But Volkswagen's share fell to 38.5 percent from 50 percent, as G.M. and others have begun vying for what will be the world's largest automobile market.
Mr. Aney said he believed that Volkswagen's long-term prospects were strong. But shareholders abandoned the company in droves after its profit warning last week. Part of the problem was that Volkswagen did not say much, beyond a general prediction that things would be worse before they were better.
That uncertainty was palpable at the Geneva motor show, where Mr. Neumann found it easier to discuss how Volkswagen planned to replace broken ignition coils than how many cars it hoped to sell.
"If you tell me when the Iraqi war will start," Mr. Neumann said, with a tone of exasperation, "when it will be over, what the business environment will be, I can tell you what my prognosis will be."
03-18-2003, 08:37 AM
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It was posted on the forums over the weekend...
his comment about Monday cars is utterly priceless! I wouldn't be surprised if that buys him an a$$ chewing from the Chairman.
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