It was tough to be a Volkswagen dealer in 2016.
The diesel scandal was an almost unending source of bad news for the company, and VW dealers suffered mightily. Sales sank by double digits, and hundreds of thousands of diesel owners spent most of the year smoldering as they waited to learn what would become of their cars, sometimes directing their ire at retailers.
Meanwhile, internal drama in VW's dealer network was front and center, with a gang of six retailers taking it upon themselves to pressure the factory for compensation and another dealer suing the factory, ultimately leading to a settlement for all dealers.
Michael DiFeo, dealer principal at Linden Volkswagen in Roselle, N.J., saw it all as a member of the Volkswagen National Dealer Advisory Council. Now he takes over as council chairman from Alan Brown.
DiFeo, 37, spoke with Automotive News last month.
Q: How are VW dealers doing right now?
A: It's hard to say. Our dealer body is exceptionally resilient, and we have been surviving the best we can. Volkswagen definitely stepped up in terms of programs, which helped to fill some of the gap from our loss of business with TDI. I think in general it's been harder to get people to buy our vehicles just because of the fallout from the diesel scandal. We were very much under the impression that some of the TDI buybacks were going to start happening earlier, and due to legal reasons that kept getting pushed back.
I think we're kind of looking for the future, and the Atlas [large crossover] is looking like a good step in the right direction. We're all enthusiastic about getting that into our showrooms.
Has VW hit bottom in terms of sales?
It's tough because Volkswagen has subsidized [dealers] by putting the kind of incentives out there that they're not used to that I think helped fill the gap. When they look at the analysis of our sales year-over-year and you take TDI out, they've actually filled in some of that gap pretty well. I do believe we've hit bottom in terms of our sales, and the only place to go is up.
How many VW dealers are making money?
Honestly, I don't know that.
How can dealers remain resilient at VW's volume levels?
Especially after this last year, many VW dealers have learned how to be profitable and not be as dependent on the new-car franchise. So I don't think there's a time limit. Volkswagen has sold fewer cars in the past than they are right now, so I don't think this is something new.
Some of the dealers that have had the biggest struggle have been newer dealers who joined the ranks after 2008 when VW [of America] made this pledge to sell 800,000 cars under [then-CEO] Stefan Jacoby. A lot of new, non-VW dealers jumped in, and this has been a rougher road for them.
What are your top priorities for 2017 as dealer council chairman?
One of the things I'm focused on is trying to revamp the dealer council process. Alan Brown and I and the rest of the national council -- this scandal was not anything that we could have foreseen, and it forced us to step into a role. We had to get ourselves out in front of the media and in front of executives and try to represent our interests. As a result, VW now is listening to us and getting our input and opinion on things. So one of my goals is that the council process is fair and transparent and that we're getting the right people in the right positions.
[Another] thing I'm focusing on is keeping VW at their word. Alan and I are very close, and I was there for him when we went through some of these meetings. It was very important to both of us that VW made some promises to us -- over many years we've got a lot of unfulfilled promises. With [VW global brand chief Herbert] Diess and [VW Group of America CEO Hinrich] Woebcken, we want to grow, and that's what they say they want to do. We need to make sure that, going forward, they don't start to go against that. I don't think they will, but that's one of my priorities.
[Another is] to make sure VW doesn't go back to the ways of the past. Specifically, our dealer body hated the volume program and the stair-step program and all those objectives. They're counterproductive to having a healthy relationship between the dealer body and the manufacturer because it puts a lot of pressure on the dealers. Volume is driven by product, and VW builds that product. If they build the right product at a competitive price, they're not going to have any problem hitting their volume expectations. They don't need to put the burden on the dealer.
What promises has VW made?
They were going to make sure they keep giving us product. A lot of products that are landing were promised to us years ago but kind of fell off. They just decided not to give them to the United States. I believe they're committed to that now.
It's also maintaining the shorter product life cycles. That's crucial to the U.S. market, although it's not crucial to some other markets they're in.
Has VW confirmed any new products for the U.S. -- the subcompact crossover, Arteon sedan to replace the CC or any Atlas derivatives?
Nothing I can comment on. For us, it's crucial that we get our core models correct. The Atlas is the first time that we'll be in this large [crossover] segment. Getting the larger Tiguan is huge for us considering the growth of that segment. It's paramount.
They are trying to make sure we get a lot of derivatives because they're seeing a lot of other manufacturers are doing the same thing successfully, and they need to do it to be competitive.
The Atlas is being launched in a crowded segment. What does VW need to do to make sure it breaks through?
A lot of that is going to be marketing. The car looks great. With the right programs to get people to come in and look at the car and drive the car, as soon as they drive the car they're going to notice the difference.
I've driven the Atlas and some of the competitor cars, and it is a much better vehicle for what you're going to be getting compared to some of the other models. It just blows them away in terms of driveability and fit and finish. The goal for VW is going to be getting them in the door and behind the wheel. Once they do that, with the right programs, that car is going to sell itself.
What needs to be done to make the next Tiguan a success?
With the old Tiguan -- although the numbers aren't great -- that was the maximum amount of Tiguans that we could get Germany to give us. The demand for that product has been very strong, and that's even with an old body style and it not being so big.
I think there's already some big demand for this car. I've been in the car. I think it's going to be the largest in its class.
What are the other big priorities for VW dealers this year?
Getting through this buyback is going to be crucial for us from a company and dealership standpoint, to move beyond this entire chapter. And we're hoping that with some of these new programs and new vehicles, we're going to see an increase in sales and a return to normalcy, something we've been craving since this was announced in September 2015.
How is the buyback program going?
It just recently ramped up. The volume we're seeing is getting much bigger. I see around eight people per day. Some of the bigger dealers I think are seeing somewhere between 16 and 20 people per day. So far, the process is going as smoothly as anyone could imagine. VW has been very good about keeping an open line of communication with myself, Alan Brown and the dealer council so that we can help identify any little problems that crop up. They've been really responsive and are trying to be very proactive in dealing with nuances that were bound to come up with a program that's this elaborate and large.
Have you had much success selling new VWs to TDI buyback customers?
It's been a little bit mixed. Volkswagen's going to be tracking this, but for me, I'd say 20 percent definitely are comfortable going back into a VW product. Some dealers I think have been higher.
Woebcken has been in the CEO role since April. He has said the company is listening more closely to the U.S. market and dealers here. What's your evaluation of him so far, and is the company changing?
I think he's a very, very smart guy, and I've only had great interactions with him so far. He's the right guy to run this new North American market. I can tell you there's been an unimaginable change in the culture of VW.
Everything I've seen has been "we need to build cars for the markets in which we're trying to sell them. We need to go out and find what our hurdles are and overcome them" as opposed to trying to convince us that we can expect the consumers to take something they don't necessarily want. And that's from the top down.
What potential new products have dealers seen that dealers think would be a home run here?
There's the five-passenger, fastback-style derivative of the Atlas. I think that would be a strong player in this market. Having something come in below the Tiguan would be a smart move. Younger consumers that are coming in to buy their first car, they don't want to buy a little tiny car anymore.
I've seen the fastback sedan, the Arteon. That would be nice to have in our market. It's not a volume product, so if I had to rate the importance, it would be subcompact crossover below the Tiguan, the sportier five-passenger [crossover], then the Arteon.
Are you pleased with how the push for a dealer settlement over the diesel scandal played out? Is the package satisfactory?
Overall, I would say yes. When I was on the national council prior to the formation of the Dealer Investment Committee, we struggled because we kept trying to find time or say "How do we bring this up?" because it was building. We were getting letters in the mail from class-action people frothing at the mouth. What I always said to Alan was: "We have to get an offer in front of the dealers so that they can make an educated choice about how they pursue their rights."
Without that committee exacerbating the situation, we might not have been able to get a number or something quickly enough, and we were fearful that if we waited too long, dealers would have gone and done their own thing.
How good that number is for each individual dealer is for each individual dealer to decide.
Has the settlement quelled the dissent within the dealer body?
I wouldn't call it dissent. I think there was just an overwhelming sense of VW -- and I believe them -- saying, "We can't talk about anything." That was their line. Unfortunately, when you don't talk to your business partner, after a while it becomes an extremely uncomfortable situation because no one knows where they stand, nobody tells you anything. Even for us on the dealer council, they wouldn't tell us anything, even to the extent of daily business things. They became very quiet, and whenever that happens it raises the level of discomfort.
I'm glad the investment committee was formed because it at least forced VW to deal with it. Their efforts to get it done and do it in a good way allowed us to kind of close the book and move forward and focus on our products and do the buybacks.
What does VW need to do now to regain the trust of the public?
That's a hard question to answer. They're going to have to do what they can do, and that's build very good products and continue to build great products for America, market it right, price them competitively and let their dealers sell for them. I think we can, and I think we will.
I don't want to say they have to sell their way out of this but just get back on the horse. A lot of manufacturers have done a lot of things; some have done things that I would argue are much worse than what VW did, and they've been able to move beyond it and I think VW will, too.