It has been a tough go for Volkswagen since it was served a notice of violation by the Environmental Protection Agency (EPA) back in September.
The company has had to put a stop-sale on its diesel-powered vehicles because they don’t comply with the U.S. agency’s emissions standards. The vehicles were discovered to have illegal software that made it easier to pass emissions testing. Besides facing possible criminal investigations, Volkswagen is also furiously working on a fix for its affected vehicles, which will either include a software flash (which is likely for newer vehicles) or an expensive hardware retrofit.
The brand image has certainly suffered, as the German automaker has been labelled as cheaters and liars. Consumer sentiment has definitely been tarnished, but have sales taken a similar turn downwards?
“We did recently run a consumer survey on dieselgate, and people are 28 percent less likely to buy a VW after the scandal,” says Alex Klein, from Autolist, an online service that polls new and used car buyers and helps connect customers to dealers to help find their next vehicle.
Weathered the Storm? Not Really
While Klein’s analysis says that people are less likely to buy a VW since the scandal broke, it’s interesting to see that the company hasn’t seen a huge slide in terms of sales.
“People look at VWs and think, ‘Wow, massive rebates on great cars that are brand new? I have to check it out.’ ” he said. “There is no thought given to the idea that VW could still be cheating; it seems impossible.”
Timothy Cain, who has been tracking new cars sales on Good Car Bad Car for several years, explains Volkswagen’s current situation.
“VW initially held sharp declines at bay with strong incentives and decent inventory,” Cain said. “As the inventory began to dry up, and as the tolerance for a tarnished product decreased, we now see January’s result, where VW owned just 1.7 percent of the U.S. market.”
Cain notes that the brand has been struggling for the whole year compared to 2014.
“VW owned 2.3 percent of the market in December 2014 and 2.0 percent of the market in January 2015,” he said. In August 2015, they were at 2.0 percent, December 2015 at 1.9 percent, and finally down to 1.7 percent in January 2016.
“January was the worst performance for the brand in the U.S. in 60 months, however, as the launch of the facelifted Passat essentially [went] unnoticed,” said Cain. “Fewer than 4,000 Passats were sold last month, a drastic result in a category where top sellers routinely top 30,000.”
There are a few reasons why the brand struggled in the U.S. in the past years, even before the scandal.
“Among mainstream automakers, Volkswagen was already a fairly niche entity in the U.S.,” explained Cain. “How a brand fares after a scandal depends largely on the perception of the brand prior to the scandal.” Cain pointed out that the brand had already been suffering with a poor dealer image and quality concerns in the country.
He added “not being allowed to sell the [diesel equipped] vehicles, which accounted for 20% of your brand’s traditional volume, is a major problem.”
Klein agrees that the diesel stop-sale is the major factor in the company’s sales decline. “The VW diesel scandal has been relatively contained to the used, affected diesels,” said Klein. “The only measurable drop-off in sales performance for VW can be attributed directly to the fact that VW was forced to stop selling all diesels in the U.S.”
Dealer Lots Face Harshest Impact
Klein points out that used car lots see the biggest hit to their sales.
“VW does not publish used VW sales statistics, nor do any other OEMs, because that metric is not a crucial business driver,” he explains. “However, for dealers on the ground — VW affiliated and non — there are serious consequences. There are hundreds of thousands of cars out there needing a recall that are essentially dead assets on lots, unable to be sold. Thus, the economic drain is not felt at the VW parent level so much as on the local level, which is what makes the scandal all the more disheartening.”
Klein explains that there’s nearly $20 million of value being lost on cars on the lot. According to Autolist’s survey, the list prices for scandal vehicles are down 5.5 percent below expectations, and non-scandal vehicles are down 1.8 percent. On average, VW list prices have dropped $2,000 and dealers still cannot move them off lots. Additionally, cars are sitting on dealer lots 71 percent longer.
While the dieselgate scandal has certainly influenced how people think about Volkswagen’s image, the impact on sales is harder to explain, and planing an exact dollar figure or number of cars is nearly impossible. Sales were already struggling in the country, but are now being stripped of its biggest strength, the diesel equipped vehicles. However, the dealerships are the ones that are really suffering, as the cars lose value, sit on lots longer and are being sold at significant discounts. The impact of the VW scandal goes far beyond just sales.
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