Volkswagen parks in Honda's U.S. driveway
Jonathan Browning, President and CEO Volkswagen Group of America, right to left, Dr. Ulrich Hackenberg, Volkswagen Brand Board Member, and Dr. Martin Winterkorn, Chairman of the Volkswagen Group stand with the Volkswagen E-Bugster concept at the North American International Auto Show in Detroit, Mi. (Jan. 9, 2012) Credit: AP Photo
Volkswagen chief executive Martin Winterkorn squeezes his bulky frame behind the wheel of the new Honda Civic and takes out a tape measure - part of a forensic, and very public, inspection of the five-door compact at last September's Frankfurt car show.
"You were a role model for us for many years once," he tells an attendant Honda official. "Really."
They were the words of a man who knows Honda (7267.T) is on the ropes in the United States, and who fervently hopes he can eat the Japanese group's lunch in its biggest market.
The United States is home to nearly one in two Honda buyers, but its sales there fell 7 percent last year while overall U.S. vehicle sales expanded at a double-digit pace.
As a result, Honda's market share has tumbled 2 percentage points in two years to 8 percent in 2011. Volkswagen (VOWG_p.DE) is headed in the opposite direction, albeit from a low base.
Winterkorn wants to at least double the Volkswagen (VW) brand's 2.5 percent U.S. market share. Last year's sales performance was the best VW has managed there in three decades, with sales of Jettas and Passats up 44 percent and 83 percent respectively.
"The good news for Volkswagen is that brand loyalty is not what it used to be. Honda buyers started to flee to other brands like Hyundai because they wanted to express themselves and not be just one of the herd," said TrueCar analyst Jesse Toprak.
At an international level, VW has had its ups and downs since its birth in 1930s Germany, but it has come out of the 2008 crisis better than most.
While General Motors (GM.N) was pushed into a pre-packaged bankruptcy and Toyota (7203.T) endured its first ever operating loss, the Wolfsburg-based group has emerged as the world's second largest carmaker with the firepower to buy Peugeot (PEUP.PA), Fiat (FIA.MI) and Renault (RENA.PA) put together.
It made a record profit in 2011, but will need to prey on weaker rivals abroad to keep growing. That is because its core European market is set to shrink to its smallest in a decade, and carmakers are piling on costly, margin-corrosive incentives for free to compete for what remains.
VW's ultimate goal of becoming the largest, most profitable carmaker in the industry hinges on whether it can find lasting nourishment in the United States, where its pricey imports long ago forced the brand to feed off the scraps left over by others.
By shifting German car production to Tennessee and taking expensive features out of their over-engineered cars, a practice known as "de-contenting," VW has succeeded in luring customers back with affordable entry prices and sporty sedans like the Jetta - features that were once the hallmarks of Honda's Accords and Civics.
"Our biggest competitor here is Honda, since its customer base shares the same core values. We both focus on sportiness and versatility and have high demands when it comes to handling," VW's U.S. strategy chief, Rainer Michel told Reuters.
Toyota's no-frills customers do not buy a Camry to enjoy the ride, he said, while Hyundai buyers are attracted to the kind of trendy exterior designs which Honda and VW both eschew.
