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Then there's China, a market once dominated by VW that is attracting newly intense competition. VW's market share in the world's fastest-growing car market has fallen from 60% to under 40% in only two years, as more than 100 local and foreign automakers have entered what amounts to a demolition derby. After industry sales grew 56% last year to about 1.1 million vehicles, they rose another 82% for the first half of 2003, according to the industry publication Automotive News. VW and a partner recently broke ground on a new engine plant in Shanghai, amid plans to expand capacity from 800,000 to 1.6 million vehicles annually at a cost of $7 billion over five years. Other manufacturers are also adding capacity.
All this intensifying global competition makes the U.S. market key for VW. But as the Big Three learned the hard way, you can't build luxury-car sales if the reliability of your basic fleet is perceived to be poor. Among the Big Three, only GM's Cadillac, with a fleet of radically redesigned vehicles, including a new crossover, remains one of the top sellers in the luxury segment. Moreover, luxury-car buyers have come to expect an elite level of service at dealerships, something VW isn't known for. In 1998 only 81 of 600 authorized VW dealers sold the brand exclusively. The vast majority sold other nameplates and were caught short-handed when VW's sales surged, unable to handle the additional repair and maintenance requests. VW's suppliers weren't able to deliver parts fast enough, especially in the wake of several recalls. "In Arizona we had 160 cars down at once, and we couldn't get the parts, so we had to ask people to wait," says Jens Neumann, a VW board member in charge of North American strategy.
VW says such snafus are behind it. The firm has boosted the number of VW-exclusive dealerships to 350 and plans to raise that figure to 450, which will account for 75% of VW's volume in the U.S. within two years. The company says it has opened five parts depots to alleviate shortages and that dealers have added an average of four new service bays in the past four years. "Two years ago, our customer wait time [for a repair] was on average eight days," says Frank Maguire, vice president of sales and marketing at Volkswagen of America. "Now we're down to 2.6 days."
To pump up VW's reliability ratings, Pischetsrieder recently dispatched to the U.S. Stefan Ketter, a recognized expert in quality control. After service technicians found a potentially faulty wiring harness in the Touareg, VW sent technicians to the homes of Touareg owners to fix the harness if necessary and reassure them of the vehicle's quality. The company now has a dozen engineers in the U.S. to monitor the Touareg and other issues.