VW digs in its heels in US marketplace
The steady upward rush in automobile prices could toss the whole industry for a loop, warns James McLernon, president of Volkswagen of America Inc. "I think definitely that the automakers now are at a threshold where price could afffect volume," he asserts. "The price, combined with high interest rates, is very serious for the auto companies.
"After all, the price-volume curve is only so elastic."
Nonetheless, some auto companies, such as VW, seem to find little resistence to their higher-priced cars even as price rise piles on top of price rise.
VW, for example, has boosted the price of its 1981-model cars an average 6.8 percent and still talks of selling more than 330,000 vehicles over the next 12 months, including nearly 260,000 US-built Rabbits and pickup trucks, a significant rise over the 1980.
The West German importer's goal is 5 percent of the total US auto market, a spot it held in the early 1970s when the old VW beetle was riding high.
"We're running at 3.9 percent of the total US market right now but the domestic share of the market is unrealistically low," said Mr. McLernon. The 5 percent figure is based on 10 million total US car sales a year. The market now is running 6 million to 7 million.
meanwhile, the 1981-model VW lineup includes the first noticeable change in the popular Rabbit, originally introduced in 1975. Even so, you have to look hard to see the difference. The grille and the front and rear bumpers are new, taillights are wider and now extend to the vehicle registration plate, and the front turn indicators and side marker lights have been folded into single wraparound units located outboard of the headlights.
The new Rabbit also has two new engines and a new transmission. The gasoline engine is increased from 1.5 to 1.6, yet overall miles- per-gallon is up.
A five-speed "S" version of the car will go on sale soon, including front spoiler, red accent stripes, and fender flares.
The Rabbit also has a new dashboard and, for those cars with the company's passive safety belt, a knee-bar bolster that is fully integrated into the dash.
A brand-new Dasher won't reach the US for a year even though it already has been introduced in Europe. The car is sold outside the US as the Passat. VW plans to offer a diesel engine in the Jetta but that project also is delayed.
A new Scirocco is on the way as well.
Mr. McLernon, who headed up Chevrolet's manufacturing activities till he switched to VW to bring the Pennsylvania assembly plant on stream, has fought many a battle with US suppliers over quality. At one time VW was rejecting from 10 to 15 percent of all components which came into the plant because the quality failed to meet the high standards set by the company.
Thus, VW has held on to its image of high quality, which the old beetle coined, despite the continuing rise in prices. The $2,000 beetle now is the $7, 000 to $8,000 Rabbit.
"The real battleground in the 1980s is going to be in the areas of quality and engineering," declared Mr. Mc Lernon. He makes the point over and over again. Why? Because all of the coming cars will be of the same overall concept and form. It will be hard to tell them apart. "Fit and finish" alone will make all the difference.
To meet the rising demand for its cars, VW of America now is building a second assembly facility in Sterling Heights, Mich., near detroit, in what used to be an old US Army- owned plant.
"The only contracts let so far are for construction," reports Mr. McLErnon. Ground- breaking occurred in October for a $90 million paint shop and general renovation of the facility. The second assembly project will cost VW nearly $ 300 million.
The plant was built in 1953 for the manufacture and testing of turbojet and turboprop engines.
When production starts up in the new plant in 1982, it will employ from 3,500 to 4,000 workers and produce 800 cars a day on two shifts. Total employment at the Westmoreland site in Pennsylvania is 5,700 with a daily output in excess of 1,000 cars, including both Rabbit cars and pickup trucks. All other VW vehicles are imported from Germany.
Mr. McLernon does not see a third assembly plant any time soon, meaning, he says, in this decade. "But I could be wrong," he adds.
What the company will do is increase its manufacturing capacity to back up the assembly plants. A stamping plant in South Charleston, W. Va., for example, is undergoing an $80 million expansion and will grow from a half million square feet to a million.
"We have several new press lines coming along," says The VW chief.
Looking at the Japanese, Mr. McLernon says, "we only compete in those cars that have front-wheel drive -- in other words, where the technology is the same as ours.
"We have not felt the impact from the high increase in Japanese sales as has the domestic industry."
The VW chief blames the US government for a large part of the damage done to Detroit. "The government arbitarily sat on oil prices over the years," he asserts. "While the rest of the world was paying $1.50 to $2 a gallon, we were paying 25 and 30 cents a gallon.
"Consequently, the domestic industry could not sell cars that offered good fuel economy because the customers were more interested in performance, luxury, and a lot of other things."
But when the price of fuel hit $1 a gallon last December, everything changed. "That was the golden number and consumer preferences changed," he says.
The rapid rise in the demand for small fuel-efficient cars was right up VW's alley.
After all, the VW Rabbit diesel consistently provides 50 miles per gallon and up.