Because of logistics problems: Insiders see Volkswagen's annual targets in America shaky
North America should actually boost VW's sales significantly. However, thousands of vehicles have been piled up at a factory in Mexico since the summer. And alternative routes are expensive.
Dusseldorf, New York. Germany's largest car manufacturer Volkswagenis struggling with sales problems in the US market. As four insiders unanimously reported to the Handelsblatt, the group is currently particularly worried about logistics. Accordingly, there is a lack of railway wagons for the transport of VW vehicles produced at the Mexican plant in Puebla. The finished cars are backing up and cannot be delivered to dealers.
Volkswagen is working on fixing the problem. Nevertheless, company insiders fear that VW will not be able to meet its annual targets in the region. “Our goals for 2023 are shaky,” it says. A lack of sales in the summer jeopardized sales targets. The higher transport costs on alternative routes also weighed on profitability.
In July, CEO Oliver Blume capped the group's sales targets. Instead of 9.5 million cars, the Wolfsburg-based company is now expecting nine to 9.5 million vehicles to be sold. As a result, the ambitious sales targets for North America were also lowered. According to insiders, achieving these revised goals is anything but certain.
“We remain on track to achieve our sales targets in the region,” said a company spokesman when asked. VW in North America also points out that the situation is now better and the backlog is easing. VW is working “relentlessly” to “improve supply and increase capacity in the region,” said Andrew Savvas, regional sales manager. In the past two months alone, deliveries in the region have increased by 43 percent compared to the first half of the year. “We will continue to do everything we can to provide our dealers and customers with new vehicles,” said Savvas.
The problems in North America are all the more serious as demand in Europe and China is already weakening. North America is also an important growth market for Volkswagen. The company actually wants to strengthen the region in order to make itself more independent from China.
In Puebla, Volkswagen produces, among other things, the combustion engine models Jetta and Tiguan, which are considered bestsellers in theUSA . Typically, half of them are transported to North America by rail and the other half on specialized car ships.
Insider: In the summer, up to 30,000 vehicles were piled up at VW in Mexico
In Mexico, VW can produce up to 10,000 vehicles per week. Last year, 80 percent of the annual production of more than 300,000 cars was exported to the USA and Canada, with the remaining 20 percent going primarily to the Mexican market and South America.
As insiders report, around 30,000 vehicles were piled up around the plant in Puebla in the summer, which affected production. Although the backlog is decreasing, it is said to have still amounted to just under 10,000 vehicles. According to insiders, the fact that the number of cars not being transported is decreasing is primarily due to VW logistics' efforts to find alternative transport routes.
Volkswagen has set itself ambitious goals for North America. Ten percent market share by the end of the decade is the target of regional boss Pablo Di Si, which he confirmed in the Handelsblatt last December. According to the data service provider Marklines, the group achieved a figure of 4.1 percent in the first half of the year, only recording a slight increase compared to the previous year.
However, the core VW brand shrank slightly in the growing market compared to the same period last year - from 2.1 to 2.0 percent market share. Sales of combustion engines in particular declined for the VW core brand in the first half of the year. Audi, on the other hand, was able to increase by around 30 percent.
In Wolfsburg, people have now become a little more reserved when it comes to US goals. CFO Arno Antlitz, who is also responsible for America, recently spoke to journalists about doubling the market share. That would still be significantly more than the company has ever sold in the USA, but less than the target of ten percent.
Missing rail cars disrupt VW's supply chain in North America
The news about the short-term delivery bottlenecks comes at a sensitive time for VW. In Europe, demand for the strategically important electric vehicles is stuttering; in China - by far the Wolfsburg-based company's most important sales market - sales figures in June, July and August were below the previous year.
The logistics problems in America are primarily due to a lack of rail cars - a problem that also affects other manufacturers. The double-decker wagons are standardized in the region and are used by all car manufacturers for transport. “During the coronavirus pandemic, thousands of wagons and locomotives were stored. “It takes time to reinstate them because they have to be re-approved by the regulatory authorities,” says an insider.
Many cars are currently congested in the northeast of the USA. Transporting them to Puebla in southern Mexico is expensive and time-consuming. “We are also a victim of geography,” said another insider: No other large car factory is as far south as the one in Puebla. It is also said that the promises made by the railway companies were not kept. The railway companies in the USA and Mexico are currently operating at high capacity, and there has been a lack of train drivers since the pandemic.
Anger is already growing among some VW dealers in the USA. “Americans want to drive straight from the farm. We can’t put them off with pre-orders,” says a manager. If there were no cars in demand, US customers would move away again - and if in doubt, buy from the competition.
Logistics problems at VW in America: ship charter and containers as an emergency solution
VW's logisticians have therefore become creative and are transporting the cars either by ship using the so-called roll-on-roll-off process or - in collaboration with the shipping companies MSC and Maersk– in 40-foot shipping containers with two cars per container, a process that is otherwise used for vintage cars. They have also opened a new, third port in Tuxpan, Mexico. However, the transport alternatives are considered expensive and are likely to weigh on profits in North America.
Another problem: Even if the cars are now arriving in America little by little, they cannot replace the lack of sales from the summer. “Production in Puebla was actually supposed to ramp up significantly in late spring,” explains an insider. The months of May to September are actually the main sales time for new cars. That's exactly where the transport stopped. “We parked cars everywhere we could.”
There is no exact number of how many vehicles could not be sold due to logistics problems - it would only be an estimate, according to US company circles. However, conclusions can be drawn when looking at the sales of other car manufacturers.
“Really bad weeks” in a time of strong sales
The US industry service Globaldata, referring to published sales figures, describes August 2023 as an exceptionally good month for most car manufacturers. Overall, demand across the entire industry increased by a whopping 17 percent compared to the previous year.
It was all the more bitter for VW that the logistics problems in Puebla reached their peak in July and August, as an insider explains: “They were really bad weeks.” Volkswagen North America is also expecting an increase in sales for the third quarter single-digit percentage range. However, the growth figures of many competitors are likely to look better in the US market.
But it is also true: Volkswagen is not alone with this issue. Other manufacturers have also recently had to struggle due to a lack of railway wagons. For example, Hondacomplained about“logistics and supply chain issues.” Also Hyundai, Ford and GMAccording to their own statements, they felt negative effects.
Some manufacturers seem to be able to deal with the problem better than others. At Honda, for example, sales rose by 56 percent in August. And also at Mercedes-Benzyou can see your own factory in Tuscaloosa is not affected upon request. It is located in Alabama - almost 2,500 kilometers further north than the VW plant in Puebla.
VW's US headquarters is in Chattanooga, the neighboring state of Tennessee. It is less affected by the logistics problems and produces the bestseller Atlas, which now has the greatest hopes for sales and profitability. The SUV was completely renovated in the summer and is well received by US buyers.