A Month Into VW Scandal, No Sales Meltdown

Dealers Are Reporting Mixed Results

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Not too bad, all things considered.

That's what Volkswagen dealers say about the brand's U.S. sales momentum as its diesel emissions scandal enters its second month.

The inability to sell diesel vehicles because of the stop-sale order is taking a toll, but dealers say they have yet to see an exodus of customers from their showrooms as heavy dealer and customer incentives provide a floor under sales.

"It's not a meltdown, but it's not business as usual either," said Mike Sullivan, president of the 11-franchise LAcarGUY network of dealerships, which has two VW stores in greater Los Angeles.

To post a year-on-year U.S. sales gain for October, the VW brand would need a 16% gain over September's sales without the benefit of diesel car sales. Mr. Sullivan's VW dealership in Hawthorne, Calif., is on pace to hit its usual monthly volume of around 135 to 140 new VWs. His larger VW store in Santa Monica is off to a slower start, he says, pacing to end the month down by about 30% from its typical volume of 200 new VWs a month.

"It's a little off, but nobody's boycotting the stores," Mr. Sullivan said.

VW dealers across the country are reporting mixed results for the first two weeks of October, which dealers say are typically weaker than the second half of a given month.

Eking out a year-on-year sales gain for the full month would take a minor miracle. Last October, the VW brand sold 30,312 new vehicles, a 7.8% gain from October 2013. To beat that total this month, dealers would need to boost sales by 16% from September and do so without the diesel-powered models that have accounted for about 20% of VW's U.S. sales this year.

Meanwhile, interest in the VW brand from online car shoppers is waning. Consideration and purchase intent for VW vehicles on edmunds.com, already on the decline this year, fell last week to their lowest levels all year, according to the car-shopping website.

Since VW's emissions violations were announced by the EPA on Sept. 18, VW brand traffic at kbb.com fell by 13% from the same period in 2014.

At truecar.com, overall VW traffic Oct. 4-10 was off 9% compared with the weekly average rate seen for the two months before the scandal, a larger than normal fluctuation, says Eric Lyman, vice president of industry insights at TrueCar. Interest in VW's diesel models, still grounded by the brand's stop-sale order, plummeted by 57% in the same window.

Even so, dealers are seeing enough conventional showroom traffic to reassure them that the bottom won't drop out this month. At Herzog-Meier Volkswagen in Beaverton, Ore., diesels account for about 30% of monthly, sales says Chris Meier, the dealer principal. But with those models off the market for now, he says, sales of gasoline-powered VWs are picking up and if the store's current momentum continues he could end up posting a small net gain over October 2014.

One big draw is a flood of incentive cash from Volkswagen of America that's intended to help shield dealers from the crisis engulfing the brand and the corporate headquarters in Germany. VW launched a $2,000 owner-loyalty incentive on Oct. 1 that could be combined with any other VW new-car lease or finance offer on gasoline or hybrid models.

The incentive gave a shot in the arm to Open Road Auto Group's two VW dealerships during the first weekend of the month, says Michael Morais, Open Road's president. Through the first two weeks, he says, sales are up at his VW store in Bridgewater, N.J., and his flagship store in downtown Manhattan compared with last October. Diesels account for a smaller share of Open Road's VW sales than the national average, Morais says.

"We remain on track, and the programs are definitely working," Mr. Morais said, noting that consumers can finance a new Passat midsize sedan for roughly the same monthly payment as leasing a Honda Civic. "We're making deals, and we're making gross."

Inventory availability and VW's limited selection of crossovers are having as much of an impact on sales as the diesel scandal, if not more, says Chris Curran, president of Curran Volkswagen in Stratford, Conn.

Mr. Curran says his midmonth sales were flat compared with last October but could be down by the end of the month. Stocks of the Jetta compact car, Tiguan compact crossover and the 2015 Passat are slim, and a re-engineered 2016 Passat with updated styling and new connectivity technology is months away, Mr. Curran says.

Those factors, plus a relatively limited set of existing VW owners nearby to attract with the $2,000 loyalty bonus, have sent sales at Hendrick Volkswagen Frisco in suburban Dallas tumbling to start the month, says Alan Brown, the dealership's general manager and chairman of VW's national dealer council. Mr. Brown says sales are on pace to be down by a third from the roughly 90 new VWs he sells in an average month at the Frisco location, "significantly off" from the pace seen in recent months at the store, which is less than a year old.

"The owner loyalty is really helping the dealer who has a customer base," Mr. Brown said. "I don't have as much action because I don't have as many people."

Last week, VW announced new dealer advertising support programs at the regional and dealership level to help boost demand. It also created a $2,000 bonus toward a gasoline-powered VW that dealers could offer to consumers who had put down deposits on diesel cars that could not be delivered because of the stop-sale order.

Dealers are also anxious to hear how and when Volkswagen will be able to fix its noncompliant diesels at the brand's national dealer meeting Thursday, Oct. 22, in Orlando and for VW executives to provide a clearer picture of what to expect in the months ahead,

So far, LAcarGUY's MR. Sullivan said, VW has been "dragging their feet on saying anything other than lots of things they're working on. They've got to start saying something a little more profound and specific."

Ryan Beene is a reporter for Automotive News.

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