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

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800,000 BY 2018: Volkswagen veteran Stefan Jacoby, CEO of its American business, aims to increase U.S. sales by 300% in eight years. | Photograph by Peter Hapak

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INSIDERS: COO Mark Barnes and corporate communications head Jill Bratina teach their boss about Americans' mysterious taste in cars. | Photograph by Peter Hapak

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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."