VW to invest $7 billion in US market

Volkswagen AG is to invest $7bn (£4bn) in North America over the next five years in a bid to boost its sales in the region.

VW has also reiterated its goal of selling one million Volkswagen and Audi vehicles in the US by 2018. By which time, VW has set its sights on becoming the world's biggest carmaker.

VW is currently the world's third-biggest manufacturer, behind Japan's Toyota and US carmaker General Motors.

"As a group, we will invest over $7bn in North America over the next five years," said Martin Winterkorn, VW’s chief executive.

The firm will also launch a new sports utility vehicle (SUV) in the US – one of its biggest markets – in 2016.

VW's plans to boost investment in the region come at a time when the US car market has been recovering from the slump seen in the years after the global financial crisis.

Analysts expect 2013 to be the best year for the US auto market since 2007, with total annual sales expected to reach nearly 15.6 million units. If that figure is met, it would mark a strong recovery from 2009, when sales fell to 10.4 million.

Global carmakers, including Volkswagen, have benefitted from the continuing recovery.

Last week, Volkswagen reported record sales for all three of its top brands – Audi, Porsche and Bentley – in 2013. A rise in deliveries in the US market was a key contributor to their sales during the period. Audi's sales jumped 13.5 per cent in the US during the period, from a year ago, while Porsche saw growth of 21 per cent. Bentley deliveries rose 28 per cent.

According to Dr Christian Stadler, associate professor of strategic management at Warwick Business School, Volkswagen AG has previously focused on Europe although it has also done well in China.

“If VW is to reach its goal of becoming the world’s number one car manufacturer it has to improve its performance in North America,” noted Dr. Stadler, who specialises in analysing the car industry. 

“The target VW has set to sell one million cars by 2018 is very ambitious. It means VW will need to increase sales by 10 per cent each year in the US. This is a tough goal when considering that sales of the VW brand declined by seven per cent in 2013."

 “VW’s luxury brands - Audi, Porsche and Bentley - are doing well, but in the US the name Volkswagen does not have the same reputation for quality and good value as in Europe. Most car buyers in the US would say Toyota has that reputation,” added Dr. Stadler.

“Volkswagen’s latest Passat, released last year, was made for the US market, but Toyota and GM reacted by slashing prices on their equivalent cars. This hit sales of Passat sales and took the steam out of them,” noted Dr. Stadler.  “It is time for VW to fight back. A new mid-sized SUV will help. VW will be helped with the US being a growth market. This new investment is welcome as it shows a shift in focus towards the US. VW needs to crack the US if it is to become number one in the world.” ∎