Volkswagen floats pull back in United States, angering its dealers

The suggestion was startling: Maybe Volkswagen should give up on selling cars to America's masses.

It was late January, at the Detroit auto show, and Herbert Diess, the global chief of Volkswagen's namesake brand, was sounding out U.S. dealers as the company grappled with the biggest crisis in its modern history. Perhaps, Diess wondered aloud, VW should stop trying to compete with the likes of Toyota in America and go back to focusing on higher-end models.

"It was near crickets in the room," said Alan Brown, chairman of VW's U.S. dealer council.

After stunned silence came anger, Brown said. He and 11 other dealers are heading to company headquarters in Wolfsburg, Germany, next week to tell executives they fervently oppose throwing in the towel on the mass market. They want the company to stick to the commitments it has made for new models and keep U.S. prices where they are now.

Diess' trial balloon underscores how VW is struggling to regain its footing in the wake of the diesel-emissions scandal, which sent sales plummeting. Returning to the days when it was a boutique brand in the United States — more like Subaru or Mazda — would be a turnabout by a company that aimed to more than triple sales in the country and overtake Toyota as the world's largest and most profitable carmaker. It would also be an admission that the VW reputation is so damaged that it simply can't go head-to-head with the biggest players in the world's most lucrative market.

At a minimum, the lofty U.S. sales targets set by former CEO Martin Winterkorn are under review and could be gone. Diess wants to focus on improving pricing and profits with better sport utility vehicles, instead of chasing big numbers, said a person familiar with the matter. Volkswagen hasn't firmed up a plan to return to the premium price strategy in the U.S., the person said.

For the more than 600 VW dealers in the U.S., it would be a disaster, Brown said. "We've got to be a real brand — and that means you have to go after sales volume. Anything else will be unacceptable."

The automaker was caught last year cheating on California and U.S. emissions tests for its four-cylinder diesel engines. Winterkorn resigned, and VW is facing lawsuits and massive fines. It's yet to come up with a solution to bring its diesel cars into compliance.

The sudden departure Wednesday of Volkswagen of America Chief Executive Officer Michael Horn — who drove the mass-market push — fueled concerns that a complete shift in U.S. strategy might be gathering steam in Germany, said Brown, co-owner of two VW dealerships in suburban Dallas.

He said dealers want Volkswagen to stick with its current blueprint, and keep prices low enough for mainstream consumers. Dealers invested a lot in their showrooms and need bigger sales volume to make a profit on their bigger, more expensive stores, he said.

The brand has taken many turns in the U.S. In the '60s and '70s, the company sold hip Beetles and Buses for cheap. Next came the higher-quality, fun-to-drive era, backed by the Fahrvergnugen — German for "driving enjoyment" — ad campaign of the '90s. VW enjoyed cult status through the 2000s, said Eric Noble, president of CarLab, a consulting firm. In 2005, when former Chairman Ferdinand Piech was still in charge, VW even tried to move into the luxury market with the Phaeton sedan — priced at $85,000.