Fitting in at VW: Try 'Raumwunder'

Of course, small means fuel-efficient; but there's also room to push mph

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Raumwunder. That's the word the Germans at VW use to express the concept: Think small.

Loosely, it means small on the outside, big on the inside, which fits nicely VW's New Beetle. The little Beetle is again in a position to play a big role in helping the carmaker dig out of the trenches, along with VW's larger, but still fuel-efficient, Jetta and Passat.

Volkswagen of America has a stable of gas and diesel models that recently took four of the top 10 spots in fuel efficiency as rated by the Environmental Protection Agency. Of the larger automakers, VW could benefit greatly from a consumer shift to smaller, more fuel-efficient cars in light of spiking oil prices.

But with a new marketing strategist and a new ad agency, VW is a marketer in transition and so far has chosen most noticeably to highlight performance, not fuel economy, in its 2006 advertising. VW for now is resting on its reputation for fuel-efficient cars, rather than bragging about it. On the other hand, new products like the Eos small convertible confirm that VW continues to appreciate the advantage of thinking small.

The challenge for VW is to reverse a years-long market share skid in the U.S. and re-establish itself as a leader in the domain of pricier small cars.

The "perfect storm," as top VW spokesman Steve Keyes labels it, that left VW in the doldrums occurred in 2005. Production shortages of the Jetta and Passat, VW's most popular models, crippled the automaker.

But complaints about quality have also dogged VW. And beyond the problem that Mr. Keyes acknowledges, German parent VW AG stumbled by moving upmarket, with pricey models like the Phaeton and Touareg siphoning precious development dollars. The upmarket strategy also delayed makeovers of core products like the Jetta and Passat.

VW's woes haven't spared the New Beetle, which debuted in 1998; its sales dropped 19.1% to 17,003 units last year, after tumbling by 35.7% in 2004. VW reported its overall U.S. sales fell 12.5% to 224,195 in 2005.

So far, 2006 is looking better; the good news includes a 13.7% increase in New Beetle sales in March to 3,883 units, though the convertible version dropped 12.5% to 3,208. VW overall reported a 23.8% March increase to 20,730 units. It attributes higher sales to the fact that several models were spruced up-the New Beetle was freshened for 2006, and the Jetta, Passat and GTI underwent major revamps; sales for all those models were up in March, with the Passat posting a 64.8% gain.

"We completely freshened many models for 2006. We're seeing that reflected in sales-the market is responding well to the freshening. But there's a character and look of Beetle you can't fool with," says Kerri Martin, who moved to VW a year ago from Mini USA and now holds the title of director-brand innovation.

Overall, the compact market is also making slight gains, though it's become more crowded with entries, according to J.D. Power & Associates.

And fuel economy can't be completely ignored. "Dealers tell us customers are coming in with SUVs, saying, 'I need to find a more fuel-efficient car, and I know VW has a reputation for that,' " says Mr. Keyes, who recently rose to the title of general manager-public relations.

But beyond that, consumers "are making the shift themselves," Ms. Martin says. "They're asking, 'How much do I really need in a home, money or car?' There's something big going on there, I think. Our cars fit into the whole equation."

Since VW believes its cars already fit the value equation-and always have and consumers are aware of it-VW's most visible marketing is focusing on other attributes. Currently, VW tends to market its solid reputation for fuel-efficient vehicles primarily in point-of-purchase materials for diesels.

Industry observers are watching for changes that might come from last year's agency switch at VW. Mini agency Crispin Porter & Bogusky, Miami, followed Ms. Martin to VW, seizing the $300 million-plus account without a review last September from Arnold Worldwide, Boston.

Ms. Martin says the "Drivers wanted" campaign created by Arnold is still in place though VW is re-evaluating its market strategy and direction. The "Drivers wanted" effort has been praised within the auto industry, but the first VW campaign from Crispin doesn't use "Driv-ers wanted" or loudly promote fuel efficiency-instead it highlights mph over mpg with a youthful pitch for the sporty GTI. It includes the new theme "Get to know your fast" and a Web site; Crispin has made a name for itself in nontraditional media.

VW says the new campaign does stress fuel efficiency and safety, as well as such performance aspects as handling, turbo power and torque. However, a mischievous little creature appearing in the commercials and on the site is called a "Fast."

Speed isn't everything. Last December, VW launched the "Force of good" campaign featuring VW owners as goodwill ambassadors. A new twist surfaced at this year's New York Auto Show, where VW linked with Meals on Wheels, which delivered 13,000 meals to the needy in New Beetles. Ms. Martin helped conceive the idea. "We wanted to take our investment into the community instead of doing monstrosity displays," she says. "We're creating symbols of relevance for the brand."

More than fuel saver

VW backed the New Beetle with $7.8 million in U.S. measured media advertising last year, down 1.3% from '04 and less than a tenth of the spending devoted to VW's best-selling Jetta, according to TNS Media Intelligence. But in all fairness, it will take more than a gas crisis and an iconic fuel-saver to resuscitate VW.

Analysts say VW's lineup needs a major overhaul. Jetta was 8 years old before its redo last year. Also, without a truck VW is competing in only half the marketplace.

Tom Libby, senior director-industry analysis, Power Information Network, believes VW is hampered by high prices and quality problems.

"The real problem is they are not interested in head-on competing with the Japanese," Mr. Libby says. "If you look at any segment they're in, they tend to be priced above average. Part of it is arrogance. They think they have a distinct advantage and unique appeal in their German [engineering] heritage. ... Generally, VW's image for quality and reliability is not good. Until you decide to address it, you're not going to achieve the volumes you want. [VW brand Chairman Wolfgang] Bernhard seems very aggressive and real-world focused. Maybe he will address it."

New products may help cement VW's position as the brand of choice for the fuel-conscious. Heading for the U.S. this year is the 2007 Eos CSC-standing for coupe, sunroof, convertible.

Pricing for the four-seater Eos (Greek for "mother of the wind"), which features a folding hardtop, isn't firm yet, but insiders think the car will sell for less than $30,000. A new-generation Golf is coming this summer.

"The New Beetle is not a four-door sedan. It can't by itself bring [VW] back," Mr. Libby says. "VW is behind in replacing new products. They have to invigorate their product lineup. You can't let another 10 years go by."
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