What's Holding Back VW's Move Up-Market

Their dealerships.

As some of you know I recently purchased a new Infiniti G37x. The second runner-up: the Volkswagen CC. I looked at about a dozen other cars in making my decision and by far in the entry-level luxury sedan class, IMHO these are the cream of the crop. In another post, I'll probably give you my view on all the cars I looked at.

But back to the VW. Between the CC and the G37 both cars had their strengths and weaknesses. And it's easy to make a case for either car. But part of the car buying process is also the environment that you enter: the dealership. In this area there is a huge gap between the two companies. Infiniti is emblematic of the experience you expect from a luxury car dealership, although I'd say that it still lags behind the standards set at Lexus. But VW, is just a car dealership. The vast majority of their buyers and cars that they sell are not targeted to luxury buyers. As such the facilities and staff don't support the luxury experience you're buying when you spend somewhere in the neighborhood of $40K for a car.

Now I'm not just talking about leather sitting areas and offers of bottled water. It's deeper than that. I went into 2 VW dealerships as I made my evaluations. One was a relatively nice, clean dealership, the other kind of small, dark with a epithet-ridden, chain-smoking sales person. Nice guy, but extremely rough around the edges. The sales person at the 'nicer' dealership still had a distinct "car salesman" feel to him. But what's worse is that at neither dealership did anyone in the place no how to get my iPod to work in the car that called out iPod integration as a key feature. Now for me iPod integration was a key decision criteria because I spend so much time in the car and listen to my iPod all the time. What was even stranger about this is that the CC seemingly shared the same MMI interface that the Audi A4 had, which worked flawlessly and easily. But I digress a little.

So at the end of the day you have no different of a buying experience than you'd get at a Chevy dealership, very limited knowledge of the cars by the sales people, no niceties like free loaner cars when you bring yours in for service -- yet you're being asked to plunk down (at least for me) a lot of dough for a car that genuinely competes with cars by Infiniti (and in my mind superior to) Acura, Audi, BMW and Cadillac If the CTS drove the way it looked it would be in my driveway).

This also takes me back to Volkswagen's first attempt at hitting the luxury market, the 2004 $100K luxury sedan with a W12 engine that competed head on with the BMW 7-Series, Mercedes S-class and the Audi A8 on which it was based. At that time, and even today, who would buy a $100K VW? What's crazier is that it looks like they're bringing the Phaeton back in 2010 of 2011.

But this brings me back to my original question. Does VW really think that their existing dealers can support the full brand experience that people are looking for when they are going to spend up to $100K for a car? It just sounds crazy to me, but they seem to be doing it. And let me reiterate, this has nothing to do with the quality of the cars themselves. The CC is a beautiful, well performing car (although stupidly has a sunroof that only tilts up).

Why VW doesn't learn from Honda, Toyota and Nissan and create a luxury brand (Acura, Lexus and Infiniti respectively), with a separate dealer structure to support the move upmarket? Oh wait, they have. It's called Audi. I don't get it.

2 Views, 1 Magazine -- on the Bailout

I was catching up on some magazines tonight and was really surprised to see 2 diametrically opposed views on the banks and the bailout. Fittingly, one story ran in the front of the book and the other at the end.

The first article is an opinion piece by Allen Sloan who -- I think rightly so -- points out that "...before you accept the Street's version of events, recall that you didn't hear complaints about "socialism" when the government bailed out creditors of Bear Stearns and AIG, and let Goldman Sachs and Morgan Stanley become bank companies so that they could borrow hugely -- and cheaply -- from the Fed." Sloan does add that perhaps there's more to the banks desire to pay back the TARP funds may not be just to get out of the political spotlight, but also to buy back the warrants that the Treasury got for lending the funds before they become worth too much. Basically they took the money when they needed it and want to give it back before the value of the warrants rise too high and the American people get their fair return. Nice work guys.

But there is another side of the story that starts 64 pages later that tells the Banks' side of the story. Basically it's the banks crying about how they were vilified by the press and the public as they were taken through the bailout process and the feeling that they were mistreated by the government -- both in terms of changing of the deal as the process continued and politicians demonizing the banks in public sessions to score political points.

Through all the complaining there was a really good paragraph towards the end:

So has TARP done its job? "It was one of the largest government appropriations in history," says Thomas Chen, CEO of the investment bank Piper Jaffray. "And a mere seven months later we're letting capital be returned on the basis that the problem is fixed. So you have to ask: (1) Has it all been fixed?, or (2) Was it necessary in the first place?" Chen believes the program had a short-term calming effect on the economy -- more than a financial effect. Says Thomas Nides, Morgan Stanley's chief administrative officer: "The original concept was to accomplish one thing: to stop us from going off the cliff, to send a clear message that the government was not going to let the system collapse. For that I give them an A+."

I think Chen and Nides have this about right. For all the flaws of TARP, I think it did what it needed to do -- it averted an all out crisis.

One final thought on the 2 articles. Which view is more right? Are the banks having a bout of selective memory? I think so. Mostly because of the adage "Follow the money". Paulson, Geithner and Obama aren't going to get rich off TARP. But the bankers have not only kept their jobs, but it seems as if they may prosper greatly as the government takes on all the responsibility for their mistakes in the form of toxic assets, and through access of cheap money, leaving the bankers to make boatloads of money. I think the bankers doth protest too much.

Steve Forbes Would Like Us to Drive Tanks & Raise the Gas Tax

In Steve Forbes' Fact & Comment article, "Car-Wreck Regs" in the current issue of the eponymous magazine, Forbes unfortunately twists historical statistics regarding highway safety and fuel consumption to seemingly support the continued development and production of gas guzzling cars that people have stopped buying.

Let's walk through a little of his tortured logic:

• CAFE Rules Will Kill People: Forbes reaches back to an old study that found that about 2,000 additional people per year are killed in car accidents because CAFE standards drove manufacturers to build smaller, lighter cars. Now I'm sure that there is data that supports this and Forbes does a nice job of invoking an old trick -- if you reference a study you boost the credibility of your argument, regardless of the quality and bias of the study. Many "industry studies" are designed specifically to support a pre-determined point of view. So you have to determine whether or not the assertions pass your own personal smell test. Let's consider a few things then . The study compares cars build in the mid-nineties to cars built in the early '70s. But this doesn't take into consideration that in the intervening 30+ years that we have developed lightweight, yet stronger composite materials that are not only used in cars but airplanes. And it presumes that there has been no advances in car frame design or other safety systems like air bags or ABS braking systesm to make cars even safer. Not to mention that cars today meet much higher safety standards than cars of the past did. All in all it feels like Forbes' article is bunk.


• New SUV's are cleaner than old, poorly tuned compacts. This is another truly stupid argument. Yes, it is very likely that a new car will have better emissions than a 15 year old car. So yes, it's better to have newer cars on the road than older ones. But smaller, more fuel efficient cars will be cleaner than large SUVs. So why not make more of the newer cars, smaller cars? Again, Forbes loses.


• Rising CAFE Standards Increase Oil Consumption. Forbes uses some impressive statistics -- improperly -- to make his case. He points out that Fuel consumption has grown dramatically over the past 30 years -- a whopping 60%. But what he doesn't point out is that the number of cars on the road grew by 74% and with suburban sprawl, the number people who drove to work and the number of miles that they drove grew dramatically as well. These are the real reasons why consumption increased, not Americans' wild desire to drive more because mileage is better.

So what is Forbes' great idea instead of improving CAFE standards? Raise taxes. Yes, Steve Forbes who typically thinks that any idea to reduce taxes is a good one is suggesting that we raise the gasoline tax. His model for this strategy -- Europe. Another amazing flip-flop for Mr. Forbes. It's hard to think of any other article that Forbes has written that holds up Europe as a model for America to follow. He holds that high taxes is why Europeans are buying smaller, fuel efficient cars. But what happened to the problem with smaller cars being less safe? Either he doesn't care if Europeans crash to their deaths or he forgot what he wrote a few short paragraphs before.

Tom asks where the Republican Outrage is

My old college friend Tom has written a post that notes that outside of Republican talk radio (Rush + everyone on FoxNews), there has been little outrage and anger from everyday Republicans. The implication is that Republicans are more respectful than Democrats. I'm not sure I buy into the argument.

As I commented on Tom's blog, I think the reaction hasn't been the same because of the 61% disapproval rate of the guy who left and the great amount of optimism that Obama has inspired in the US and around the world.

But let's not assume that Republicans are just nicer or more polite than Dems. I think a lot of it has to do with the extreme amount of grace that John McCain has shown and others have followed. But the elbows on John Boehner, Mitch McConnell and others are as sharp as anyone's on the Hill.

I do hope that Obama can use the honeymoon period to try to create a wave of bi-partisanship, but we'll see. At least he seems to be governing to the middle (as evidenced by many of his Cabinet selections and other appointments). And I do believe that the level of tranparency he's trying to bring to government can be sustained and works to regain the trust of the American people.

Where do disaffected Republicans move to?

You always hear the liberals talk about moving to Canada or any other country if some right-wing guy wins an election. But where would Republicans go? They can't go to Canada or most any European country because they are all far more socialist than even the most distorted vision of an Obama presidency would be. Russia, no. The Middle East, no. South America -- well maybe some of the Neo-Nazi types would feel comfortable in Argentina.

But seriously, they won't go anywhere, just like the liberals who threatened to go to Canada didn't leave and were never serious about it. Why? Because there's no better place to be and if you really want to help make the country better, you can't do it from thousands of miles away. You have to be here, working shoulder to shoulder.

As both McCain and Obama stated last night (even Karl Rove said it on Fox News), today ESPECIALLY after a bruising election season, we are all Americans who love this country and we must all come together to fulfill the promise of America and restore our standing in the world. For all our warts, as Ronald Reagan's words still ring true: "America is a shining city upon a hill whose beacon light guides freedom-loving people everywhere."

Pakistanis Decry US Air Strikes

In CentCom Chief David Petraeus' visit to Pakistan, several officials complained that the Predator attacks were resulting in a "loss of precious lives and property" and engendering "anti-American" sentiments.

All I can say is FU and who cares. The Al Qaeda operatives who are being targeted, as well as the people in area that have been harboring them, didn't like Americans in the first place, so nothing lost there. Besides, towns in South Waziristan don't have any real infrastructure to worry about being blown up anyway.

If the damn Pakistanis didn't cave (pun intended) into the tribal leaders who supported Al Qaeda in the first place and let them set up shop again after they were chased out of Afghanistan we wouldn't be having this discussion at all.

Go Vote!

The opportunity to vote is both a right and a privilege. Don't pass it up. But if you do, I don't want to hear any complaining for the next 4 years.