Why Volkswagen Executives Have Been Traveling to the US Frequently Lately [Next.Jjin]

Herbert Diess, CEO of Volkswagen, is driving the ID.Buzz around the roads of Austin, Texas, USA. (Photo by CEO Diess SNS)

[Asia Economy Reporter Jeong Hyunjin] Volkswagen executives have been making frequent trips to the United States recently. Herbert Diess, Volkswagen's CEO, has been appearing in interviews with U.S. media and posting photos and videos on Twitter one after another. Scott Keogh, President of Volkswagen Group North America, also appeared at the New York Auto Show held for the first time in three years since COVID-19 and actively engaged in interviews with CNN and others.

"We are not going anywhere." On the 17th (local time), CEO Diess appeared on CBS's news program '60 Minutes' to emphasize the importance of the U.S. market. He admitted, "It's hard to accept, but we lost strength in the U.S. market." He also revealed that there had been years of internal debate about whether to exit the U.S. market, but the conclusion was that "we must stay in the U.S."

"We were lost in the wilderness for a long time, but we are back," said President Keogh to CNN two days later on the 19th. He mentioned that Volkswagen was late in launching popular sport utility vehicles (SUVs) in the U.S., and that the brand image was severely damaged by the 'Dieselgate' scandal in 2015, where illegal software was installed to manipulate diesel emissions to appear lower than actual levels. He emphasized that they are working hard to correct this.

He also highlighted that supply chain issues, which surfaced due to COVID-19, have been resolved, and that production is now taking place in Tennessee, U.S., and Mexico rather than Germany.

Volkswagen, Focused on China, Shocked by Russian Invasion

In fact, the U.S. market has been a sore spot for Volkswagen. Volkswagen ranks second globally in the automotive market after Toyota. According to last year's major automotive market sales figures compiled by the Korea Automobile Manufacturers Association (KAMA), Volkswagen holds a 14.2% market share in China and 25.0% in Europe, ranking first in both markets. However, it does not even rank in the top five in the U.S.

[Image source=Reuters Yonhap News]

The key point here is that Volkswagen has concentrated on securing the Chinese market. Volkswagen's brands such as Audi, Porsche, and Bentley have recently shown rapid growth in China. Currently, about 40% of Volkswagen's total sales come from China. Bloomberg News analyzed this by saying, "This approach by Volkswagen has generated healthy profits but is not an ideal positioning." It emphasized that the Russia-Ukraine invasion and the relationship between China and Taiwan could pose risks for Volkswagen.

At the same time, the U.S. is a core electric vehicle market, which is another reason Volkswagen is focusing its attention on the U.S. With Tesla leading the global electric vehicle market, not only Volkswagen but also major global automakers have been eyeing the U.S. market. Hyundai Motor Group Chairman Chung Euisun visited the U.S. five times last year and three times this year. Volkswagen also announced last month that it will invest $7 billion over the next five years to increase electric vehicle production in the U.S.

In short, the strategy appears to be to reduce China-related risks while expanding market share again in the promising U.S. market.

Volkswagen Seeks to Recapture Past Glory

Volkswagen is determined to regain its past glory. In the 1960s and 1970s, Volkswagen solidified its position in the U.S. with iconic products like the 'Beetle' and 'Microbus.' Last year, Volkswagen's U.S. vehicle sales were about 370,000 units, but 50 years ago, annual sales in the U.S. exceeded 500,000 units. The U.S. share of Volkswagen's sales was in the single digits now but exceeded 25% in 1970.

Especially considering that American drivers prefer large vehicles, Volkswagen seems to be trying to recapture its past glory by unveiling the 'ID.Buzz,' reminiscent of the Microbus, last month and continuing its U.S. visits.

Herbert Diess, CEO of Volkswagen, is taking a photo with Jeff Bezos, founder of Amazon, in front of the ID.Buzz. (Photo by Diess CEO SNS)

Last month, CEO Diess appeared with the ID.Buzz at the South by Southwest festival held in Austin, Texas. He posted on social media, "Many Americans are falling in love with the Buzz." Earlier this month, he met Amazon founder Jeff Bezos in Chicago and posted a photo standing side by side in front of the ID.Buzz. This is likely an active effort to improve and elevate the Volkswagen brand image in the U.S.

However, it is uncertain whether the U.S. market will easily yield its position to Volkswagen's efforts. Bloomberg reported that Japanese automakers like Toyota and Nissan tried but failed to take market share from American automakers like Ford and General Motors (GM) in the large vehicle segment, and Tesla leads in electric vehicles and SUVs. We will watch closely to see what results Volkswagen's efforts will produce going forward.

Editor's Note[Next.Jjin] is a section that conveys news about major companies' preparations for the future, meaning 'looking ahead to the real next in business.' We will uncover and explain both major visible issues and small but important hidden issues in an easy-to-understand manner.