Volkswagen has a lot on its plate these days. In the US, it is engaged in extensive negotiations with US and state officials about how to resolve the diesel cheating scandal that started last September. The EPA has indicated it will make proposals to manage the crisis by the end of April.
But before that happens, the company may face an open revolt from its dealers in the US, according to Automotive News. A group of dealers are headed to Germany this week to present their frustrations directly to VW senior management. They want answers and they want them in writing before the annual NADA national meeting that begins March 31.
Tensions were ratcheted up when Volkswagen and Michael Horn decided to part company last week. Horn, who worked for Volkswagen for 26 years, was CEO of the company’s North American operations. He was a strong supporter of American dealers, especially in the wake of the cheating scandal that saw sales of popular diesel powered cars suspended completely. Horn stepped in to keep the dealers fully informed at all times. He also liberated tons of cash from corporate coffers to be used for incentives for nervous buyers.
His departure has not gone down well with dealers, who felt Horn was their biggest supporter. He is credited with persuading his bosses to shorten sedan life cycles to five years from seven, bringing Volkswagen in line with the product cycles of its Japanese competitors. He lobbied hard to bring the hunky SportWagen Alltrack to the U.S. The rugged all wheel drive vehicle is seen as the answer to the Subaru Outback and it due in showrooms this fall.
“I’ve been a VW dealer almost 10 years, and he understood the American market better than any of [his predecessors]. He had the ability to get things done better than anyone else did,” said Fred Emich, a VW dealer in Denver. With Horn gone, dealers worry that VW’s product plans will slip. Alan Brown, head of VW’s national dealer council says dealers are seething. They invested $1 billion in new facilities over the past 10 years to support the automaker’s plans to sell 800,000 VWs in the U.S. by 2018. Instead, sales have fallen over the past 3 years. In 2015, only 350,000 Volkswagens were sold in the US.
The National Automobile Dealer Association took the unusual step last week of denouncing Horn’s departure as a “serious blow.” It called upon Volkswagen to “honor the future product plan that Mr. Horn and VW dealers fought vigorously for in Wolfsburg.” VW said in a statement last week that Horn left the company by “mutual agreement” and saluted him for “exemplary leadership during difficult times for the brand.” Those are usually the words that get said when someone like Horn gets fired but no one want to admit we was tossed overboard.
Dealers complain about mismanaged supplies and allocations and about ominous signals from VW Group’s revamped leadership in Germany about the company’s commitment to the U.S. “There’s no way to spin it,” said Matthew Welch, general manager of Auburn Volkswagen near Seattle. “It’s a disaster. And it’s created by Germany.” Alan Brown says, “We’ve got to stop the insanity. By NADA, we’d better have our business plan in writing to our dealers and have a very clear understanding on where we’re going, or we’re going to lose control of our dealer network.”
VW’s new brand chief, Herbert Diess, added fuel to the fire during the Detroit auto show in January when he mused that his company might not be able to compete with volume brands such as Honda and Toyota in the U.S. Instead, he suggested VW might be better off pursuing a near-premium product strategy with lower volumes. Given the investments dealers made based on the earlier strategy, Brown said, such a change in direction would be “catastrophic.”
All of this angst could lead to US dealers suing Volkswagen in federal court. Steve Kalafer, a Volkswagen dealer in Flemington, N.J., says he is not involved in the push for legal action but, “I can tell you without question, it’s absolutely going to happen. For an auto retailer to sue his manufacturer, it’s kind of like a child firing his mother. It’s an unnatural act. For the dealers to go to this step is incredible.”
The dealers say their first concern is not being able to get enough cars to sell. Mike Morais, president of Open Road Auto Group, says VW’s allocation system is so mismanaged that he had to buy 120 new cars another dealer who was going out of business to replenish his own inventory. “The failure of VW to address the simplest of needs like providing sufficient inventory has forced us to do something like this,” Morais said. “The shortage of cars compounded by the diesel scandal has crippled our business.”
Michael Horn served as a bridge over troubled waters for Volkswagen’s US operations during the recent diesel cheating turmoil. With him gone, the whole toxic stew that has been simmering between the company and its dealers may be ready to erupt into open warfare. That would seem to be the worst possible outcome for VW, which raises this question: “Whose brilliant idea was it to ditch Michael Horn in the first place?