The Germans Are Coming: Volkswagen's Drive to Succeed in America

Volkswagen wants to be the world's No. 1 carmaker, but first the company has to win over America.

For a new CEO, first impressions matter. Early in his tenure as president and chief executive of the Volkswagen Group of America, Stefan Jacoby got an angry letter from a VW dealer in California, declining his invitation to attend Jacoby's first all-hands dealer meeting. Jacoby was about to become the most recent in a long line of Germans bearing promises. " 'I don't want to come to Orlando and hear all these lies,' " he recalls, quoting the note. "I was impressed with the honesty, and to a certain extent, I could really understand it."

Jacoby has had to labor to absorb a lot of lessons since arriving in his adopted country in 2007. Another early one came from Jill Bratina, his new head of corporate communications. "He kept asking me why I was so thirsty all the time," says Bratina, who is rarely seen without a big bottle of water in hand or jammed into a cup holder in her car. "I'm not thirsty, exactly — I just like to make sure I have water available." All the time. Who doesn't? Well, Germans evidently. For Americans, who spend so much time sitting in traffic, their cars are extensions of their offices and family rooms. In the absence of an autobahn, comfort and convenience — and cup holders — can be more important than torque. It's become a running joke. As we leave a dealer meeting, Jacoby watches as Bratina hurriedly scoops up armfuls of bottled water for the half-hour ride to the next meeting. "Jill, I am so terribly worried that we will not have enough water for our long journey," he deadpans.

But Jacoby's importance to VW's business is no joke. In the last quarter of 2009, Volkswagen leapfrogged from the No. 3 spot in worldwide car sales to challenge — and, perhaps, when the final numbers are in, unseat — Toyota as No. 1. It's an uncertain perch VW owes largely to its recent combination with Porsche and to a surge in sales spurred by European cash-for-clunkers programs. But to secure a global leadership position, VW needs to win over America, where it has struggled. "The American market is crucial for us," Jochem Heizmann, the VW board member responsible for "growing product," told a group of American journalists last fall. "VW is determined to win back our place as a leading automaker in your market." To that end, Jacoby announced in August that the company was committed to selling 800,000 units a year in the United States by 2018, a nearly 300% increase from current levels. His job is to get there from here, despite the 36% drop in the U.S. auto market over the past two years.

That audacious goal, now a mantra within VW, inspires raised eyebrows from analysts. "It's going to be tough," says Rebecca Lindland, director of automotive research for the Americas at the consulting firm IHS Global Insight. The firm provides forecasting and market research to automakers, including VW. The IHS 2018 projection is 618,000 cars. "The competition is outrageous," Lindland says, citing not Ford or GM, but Hyundai and Kia. "But VW can make huge strides with the right product combined with good marketing."

Volkswagen, originally a beloved, albeit quirky, counterculture brand, has never seemed to fully grasp the American market. When Jacoby took over the U.S. operation in 2007, Volkswagen (including Audi) was clinging to a 2% share of the U.S. market, down from 7% during its Beetle heyday in the 1970s. (VW is now at nearly 2.9% — a significant increase, but slightly less than Hyundai's market-share jump from 2.9% to 4.3% during the same period.) The dealer network was in disrepair, fatigued by shipment delays, product complaints, and a confusing and occasionally short-lived parade of brands. The German reputation for design and engineering excellence sometimes came across to distributors as arrogance: You will accept the perfect cars we give you, not the rolling living rooms you ask for. Except the cars weren't always perfect, especially for Americans. "Inconsistent reliability has haunted VW for decades and their understanding of the expectations of the American public has never quite been there," says Lindland. "There is always a sort of cock-their-ears-and-do-the-puppy-look when we talk to them about the American market."

Jacoby, now 51 and a veteran of challenging international assignments, insists he is listening. He tells charming tales of past culture shocks, first as the dreamy and unfocused youngest son of a World War II air-force general growing up in postwar Germany, then working for Volkswagen in Japan and China, and for the Japanese company Mitsubishi in Europe. He has learned to watch first, then act. "It was clear we were not understanding of our customers," Jacoby says. "We needed to change our style in the U.S., as we are a very stubborn bureaucratic German company — and German management — to some extent. I am here to listen."

Hardworking, exacting, and exceptionally likable, he has crisscrossed the United States like a presidential hopeful, donning cowboy hats for promotional videos, eating corn dogs at auto shows, fielding and answering pointed questions from dealers and the media. (Asked repeatedly why versions of the Golf have sometimes been called a Rabbit, he quips, "We strive to be consistent.") But he's on more than a listening tour. Jacoby has spearheaded some very big decisions, moving corporate headquarters out of Detroit to Virginia, ditching ad agency Crispin Porter + Bogusky, and pulling the trigger on what will be the greenest and most modern manufacturing plant in the VW portfolio. The $1 billion commitment in one of the most challenging economies in recent history will bring 2,000 jobs to the very grateful town of Chattanooga, Tennessee (see "Willkommen to Chattanooga," opposite page). Volkswagen broke ground in December 2008.

It's clear that Jacoby's deep dive into American life has made an impression. In September, after previewing the 2010 Golf at a press event in Germany, we rode together from Volkswagen's international headquarters in Wolfsburg to dinner at the Wolfsburg Castle, the oldest remaining building in the historic German city. "It's so small here," he said, watching the tidy cottages and winding streets whiz by. He sounded atypically wistful, like an adult who has returned to his kindergarten classroom only to be surprised by the pint-size desks that once loomed large. "It is just so different in America. Everything is so much bigger."

Some two months before my trip to Germany, a friendly guy in a VW company shirt showed up precisely on time at my New York apartment and tossed me the key to a black 2009 Jetta TDI. (For those playing at home, it's a 2-liter, four-cylinder turbocharged diesel, producing 140 hp and 236 lb-ft of torque, and was the first car in the U.S. to meet California's new fuel-efficiency standards, the country's most stringent.) Already programmed into the dashboard GPS were directions to VW's new American headquarters in Herndon, Virginia. I turned a key, pushed a button, and enjoyed a perfectly engineered four-hour drive south. Pulling into a parking lot filled with VW products, I noted that the gas gauge had barely ticked below full. Score one for the clean-diesel dream.

Relocating corporate headquarters from the Detroit suburb of Auburn Hills to the D.C. metro area sent a message — both symbolic and practical — that VW was preparing to woo the American auto buyer aggressively. (And though the company left 600 back-office jobs in Michigan, the move no doubt broke the heart of Governor Jennifer Granholm.) The place screams the future: The six-story building is resplendent with light, glass, chrome, cars, and two stylized wall maps of America with a marketing twist — a point of light flashes every time someone schedules a test-drive for a VW or an Audi. (And a dealer gets his wings, I thought.) "You see how open we are here?" Jacoby asks as he brews me an espresso from a machine in his office and serves it in a porcelain cup (no to-go monstrosities here). "We are now very clearly transparent. Even the CEO door," he gestures into the airy space, "is 80% open."

Jacoby has surrounded himself with an eclectic team, with hardly a German in sight. Front and center is COO Mark Barnes, a corn-fed industry lifer, poached two-and-a-half years ago from Chrysler; he has logged nearly 30 years in the industry, first at Ford, then at Nissan and Hyundai. He once had a gun pulled on him by a customer who was dissatisfied with the paint job on his new Ford truck. "We fixed his paint," he laughs. His primary responsibility at VW is everything — new vehicles, parts, customer satisfaction, dealer training, and whatever else is required to make American car buyers happy. At the dealer meetings, which Jacoby instructed him to turn from PowerPoint-driven lectures into unstructured conversations, he is Jacoby's partner, down to their matching Montblanc pens. "My report card," Barnes says, "is the dealer-attitude survey," the semiannual satisfaction review of all brands conducted by the National Automobile Dealers Association trade group. When Barnes started, VW ranked 30 out of 32. "We're 7 now."

Jacoby's lieutenants spend a lot of time together, and an easy camaraderie has developed. "No one is spared," says marketing VP Tim Ellis, dubbed "Hollywood," by Barnes, for his hotel-spa visits on the road. Ellis, who led the transition from Crispin Porter to the recently tapped Deutsch/L.A. agency, recalls taking his new boss to see his beloved New England Patriots, only to watch Jacoby befriend rival fans, then actively root with them. "He doesn't even like football," sighs Ellis. "Why six points for one score?" teases Jacoby, a soccer fan. "That's ridiculous."

Bratina, who worked for Jeb Bush when he was Florida governor, is the target of much of Jacoby's deadpan humor. After I ask about his views on the health-care debate, he delivers an earnest monologue — he considers health care to be a human right — then turns to Bratina to ask, "We offer the health benefits, right?"

Jacoby's ability to read a room has helped him with the restive dealer network. At his first dealers meeting, he read that critical letter to the crowd. "I wanted them to know that we were going to work on their issues and grow the business in the U.S.," he says. He also made a new promise: a plant in the United States, meaning a reliable product supply with less currency exposure. Yeah, right. The following year when the Chattanooga decision was announced, it was a turning point. "It was the first time we could say that we were keeping our promises," says Jacoby. Rolling off the line in 2011 will be midsize sedans, 30% of them diesels.

Jacoby invited me to a regional dealers meeting this fall in New Jersey. He began by sharing the details on his thinking behind a recent minor product recall, and dealers put their own issues on the table. One dealer was having consistent trouble getting customers cleared through VW financing — even his son had been given the runaround. Jacoby nodded toward John Miele of VW Credit Inc., who admitted, "It's been a tough year." Many wanted to talk about local advertising support and weigh in on the national ad program. (Crispin Porter's campaigns got crinkled noses all around.) And they were desperate for information on the new Golf. "You're not sending us cars with cloth interiors, right?" said one, making a cleaning motion with his hand. "Our people want leatherette." Jacoby nodded. "I know, I know," he said. "And cup holders. We hear you." The group laughed.

Later, we visited a grand reopening of a family-owned dealership, Trend Motors in Rockaway, New Jersey, a gleaming new sales-and-service center, complete with a Wi-Fi'd customer lounge, coffee bar, and extended service hours. Adam M. Greene, the owner, who started the renovation before the economy collapsed, had sweated out last winter selling cars from a trailer on the property, praying that the economic climate would change. He beamed as Jacoby toured the facility, munching on barbecue and giving a rousing speech. When I asked Jacoby if he thought the day was a success, he furrowed his brow. "I don't know," he mused. "I've never been a success before." I couldn't tell if he was kidding.

If the goal is 800,000 units a year, VW's stepping stone is its diesel cars, wildly popular with VW enthusiasts and a big hit in the U.S. cash-for-clunkers program. "Of course we will do more about developing electric vehicles," Jacoby explains. "There will be a time when the infrastructure will be there and the unsolved questions will be answered." But for now, the VW philosophy is interim steps with accessible technology. "Diesel is affordable for people," he says, "and will give the benefit of saving fossil fuels and helping greenhouse gases."

Speed freaks love Jacoby for green-flagging a new race series, the Jetta TDI Cup, designed to help young drivers (ages 16 to 26) break into racing — and to brand VW's advanced clean-diesel technology. Each driver uses an identical factory-prepped Jetta that runs on synthetic-diesel biofuel, as do the transport vehicles and the generators at the race site. At the visitors lounges, locally sourced food is served on biodegradable tableware; there are water stations instead of bottles, energy-efficient lighting, and furniture made from recycled content. Carbon offsets cover the remaining energy use.

The night before the final race of the season in Atlanta, Jacoby and a team of eight (including VW factory driver and Dakar Rally heartthrob Mark Miller) get together for dinner at a Brazilian steakhouse. Jacoby has shown up on this muggy September night nattily dressed in cowboy boots, jeans, and a velvet jacket. Bratina frets that he will be too hot. "Don't be ridiculous. I look terrific," he jokes. "The price of German-design style," she returns. The group trades road-warrior survivor stories. Jacoby's is of his first important trip to China. His only suit was drenched after the shower rod it was hanging on gave way. "I was trying that steaming trick." He mimes the ancient hair dryer he used to dry it. It took hours. "You see? Made in China!"

Later that night, we join the rest of the Jetta Cup event staff for a nightcap at the hotel roof bar. Jacoby scans the crowd, a contented melting pot of ages, races, and backgrounds. "It's great here," he says. I ask if he's happy, and he laughs. "It is a bit lonely at the top, in a funny way," he says. "You have fewer actual accomplishments, even with the big decisions." But things are sitting well with him. His wife, Roberta, "my best friend," emails him JPEGs of their infant son when he travels. His two kids from a previous marriage are with him often. And like Germany, he has achieved a measure of peace with his past, recalling a father he believed he disappointed early on. "I was the only one there when he died," he says. "We came to understand each other. That's important to sons." So, yeah, he's happy. And we are just two children of former combatants — my dad served in the segregated U.S. Army, speaking of complex histories — talking business.

We clink beer bottles, his a Corona, mine a Yuengling. "It really is great here." He means America this time, cup-holder obsession aside. "You believe that things are possible here. It's quite a bit irresistible."

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