2010 NADA Convention & Expo; Stefan Jacoby, President and CEO, Volkswagen of America, Inc. Keynote

A Look Back On The Year That Was, The Year That Has Already Begun, And What The Next Decade Can Be For The Auto Industry

ORLANDO, Fla., Feb. 13 -- Volkswagen of America, Inc. President and CEO, Stefan Jacoby today kicked off the 2010 National Automobile Dealers Association (NADA) Convention & Expo, serving as keynote speaker. Jacoby's speech touched on the past year, the current landscape facing the automotive industry, and keys to future success for both brands and dealers in the United States.

"The fundamentals of our business are timeless, as is the connection between automakers and auto dealers," according to Jacoby. "Our industry is woven into the fabric of America, and we've undoubtedly had a big impact on American society over the years. Your entrepreneurial drive and can-do attitude define the American spirit - and we need that now more than ever."

After joining Volkswagen Group of America, Inc. in 2007, Jacoby immediately began to lead notable changes for the brand with a growth strategy based on five pillars: U.S. production, the Volkswagen organization, products, dealer network, and the brand. Under his leadership, Volkswagen improved from 30th to 7th place in dealer satisfaction ratings, moved its corporate headquarters to Herndon, Va. and announced it would build a state-of-the-art production facility in Chattanooga, Tenn. His drive continues on, as Volkswagen aims to grow its business in the U.S. with upcoming models including the all-new Jetta successor, a new midsize sedan, which will be manufactured in Chattanooga, and the successor to the iconic New Beetle.

Stefan Jacoby 2010 National Automobile Dealers Association (NADA) Convention Keynote

Stefan Jacoby Keynote Speech at 2010 NADA Convention

It is a pleasure to be with you. I am honored to be the keynote speaker at this year's NADA convention.

This organization has been an important voice within the auto industry for nearly a century.

Back when cars were still viewed by some as a plaything for the rich, NADA's founders realized the importance of the auto industry.

Because cars are now such a part of daily life, it is easy to forget what a profound and positive impact the automobile has had on society.

Our industry changed the world by offering mobility to everyone.

Mobility brings freedom, opportunity and economic development.

It enriches the human experience.

It breaks down barriers. It opens new possibilities.

Our industry has been the driver of economic growth. It helped build the middle class by offering good jobs and good benefits.

In the 20s, we offered cars that the middle class could afford.

In the 40s and 50s, we grew as the middle class expanded. We continued to grow as the baby boomers entered the market.

We have done well in times of prosperity. And we — manufacturers, suppliers and dealers — have to be part of the solution for the current economic downturn.

The automotive industry is this country's largest manufacturing base. We are among the top investors in research and development.

Those investments are yielding cutting-edge technology for safer, cleaner and more efficient vehicles.

We provide roughly 8 million direct and indirect jobs.

That combined labor force receives about $500 billion in annual compensation. It pays $70 billion in personal taxes.

You — the dealers across America — are a key part of this vital industry.

You understand the importance of strong brands. And with our products, you are the most important link to our customers.

You have been there from the start. The first independent auto dealer opened in Detroit in 1898.

His name was William Metzger. He showed some of the marketing flair that has become a hallmark of your business.

In one of his more memorable stunts, Metzger arranged for a man to drive a Cadillac up the steps of the U.S. Capitol.

It got a lot of attention, especially since the driver turned out to be quite drunk. Unfazed by that embarrassment, Metzger used the incident in an ad.

"A man drove a Cadillac up the steps of the Capitol at Washington," the copy said. "He paid for his fun, but it was worth the money to know the power of the Cadillac."

Please…do not try this at home. At least, not with a Volkswagen!

While I cannot endorse Metzger's tactics, I admire his creativity.

We have had our share of creative marketing ideas at Volkswagen dealerships over the years.

Beatles impersonators became very popular in the 1960s.

"Four Beatles in a Beetle" seemed to be a sure-fire hit.

In those days, dealers also liked to cram as many people as possible into our cars.

In 1964, an Ohio dealer managed to get 62 college students into a VW micro bus.

I don't know how they got out.

A California dealer hired Bozo the Clown to get attention for his cars.

That sense of fun -- and the risk taking that came with it -- are still very much a part of modern dealerships.

You may be the only true capitalist entrepreneurs left in the auto industry.

You lay it all on the line. We supply the inventory and the building specifications, but you supply the talent and expertise that bring a dealership to life.

You are the heart and soul of the operation, and help bring the brand to the customer.

I don't have to tell you that you are in a tough business.

Success requires a lot of hard work, street smarts, a strong personality and creativity.

Successful dealers are grounded in their local neighborhoods.

Many of you are pillars your community.

You provide jobs, make a substantial contribution to the local tax base and serve in leadership positions in your hometowns.

As manufacturers, we are proud to have you represent our brands.

At Volkswagen, we are especially proud of our dealers.

Late last year, I had the pleasure of attending a dealership opening in Rockaway, N.J.

Our dealer, Adam Greene, represents the entrepreneurial spirit that I just mentioned. He opened a beautiful new Volkswagen dealership at the height of the recession.

While his building was under construction, Adam sold cars from a trailer. I'm sure he was nervous about making such a large investment at such a difficult time. But, he was committed.

He worked hard. He deepened his connections to the community. He used his marketing skills. And when opening day came, it was a community celebration. The Mayor and local elected officials attended.

There was food, clowns and face painting for the kids. I have no doubt he will continue to be successful.

The personality traits that make a good dealer haven't changed. The building structures haven't changed much either.

In principle, most of today's dealerships look a lot like they did 40 years ago. They have well-lit showrooms, service departments, parts departments and a lots full of inventory.

Selling cars is still an art, as well as a business. But the business has changed dramatically. The challenges have increased. You know this as well as I do.

The Internet has significantly altered the dynamic between seller and buyer.

In today's world, the Internet is your showroom. An appealing web site is just as important as the look and feel of your physical location.

Customers come into dealerships more informed than ever before.

92 percent of customers who walk into a Volkswagen dealership have researched their choice beforehand.

Today's customers do not go from dealership to dealership to shop for a car. They go to a dealership to buy a car, not to look for one.

They do their shopping online.

They narrow their vehicle selection before they arrive at the dealership. For many consumers, the test drive is now a "confirmation drive" that they made the right decision.

They also know — or at least think they know — how low the dealer is willing to go to seal the deal.

There are fewer showroom visitors.

To be successful, dealers must respond to an Internet lead with the same sense of urgency as if the customer was face-to-face in your showroom. If you don't give them a response in real time, they will go somewhere else.

Your business has become more challenging in other ways.

The complexity of today's cars and the sophisticated electronics require highly trained technicians in your service department.

The backyard mechanic is a rare as an eight-track tape deck. Our customers don't like to fix their own cars. But, they don't like paying a highly trained technician to do it either.

Repair costs are a consistent source of customer frustration.

Explaining the repair takes almost as long as the repair itself.

That's why Volkswagen introduced Carefree Maintenance two years ago. It has proved successful in helping to reduce these customer concerns.

Ladies and Gentlemen, I do not have to tell you that 2009 was a particularly rough year. We have seen changes that would have been unthinkable just a few years ago.

As you well know, our difficulties are not over.

By focusing on the basics — good cars, good marketing, good service and a good customer experience at every step of the process.

This is not a time for the timid.

At Volkswagen, we're moving ahead with a growth strategy to sell 800,000 cars in this country by 2018.

We're taking the same approach that our dealer Adam Greene took in New Jersey.

At a time when others are retrenching, we're investing $4 billion on our future in this country. That's how confident we are in our company. That's how confident we are in the American economy.

The U.S. economy is rebounding. And, Volkswagen is ready.

Our growth strategy is built on five pillars — Chattanooga production, our organization, our products, our brand and our dealer network.

You may have heard me talk about the five pillars before. I know our Volkswagen dealers have heard them more than once.

We first presented this strategy two years ago. We have pursued it consistently and relentlessly ever since. It is one of the key parts of our global strategy.

I would like to touch briefly on the progress we have made before offering some thoughts on the future for automakers and dealers.

Local production is a key element of our plan.

Hiring at our new production facility in Chattanooga, Tennessee, is accelerating as we move toward production in 2011.

Our new plant already has a distinctive accent — and it doesn't sound like mine.

Almost 50 percent of all the workers hired so far and 100 percent of the skilled maintenance workers are native Tennesseans.

Our 2,000 employees in Chattanooga will join our current U.S. workforce of 2,500. Volkswagen of America and its subsidiary operations span more than a dozen states, from Oregon to Florida.

As we've been expanding our presence, we've been breaking down barriers within our organization. We are doing a better job of listening to our customers.

Ladies and Gentlemen, as you know, a good product is essential.

And product is essential to Volkswagen. At our company, we are car guys through and through. Our products are state of the art. Whether its our innovative powertrains such as TDI clean diesel, our electronic interfaces, our vehicle design or interior space – we are challenging the way people think about automobiles.

And we're doing that while making products safer and more reliable.

We have some of the safest cars on the road, and we have tremendously improved our quality. We have learned our lesson and by listening to the customers we have seen success.

Eight of our vehicles are now recommended by Consumer Reports.

Four 2010 Volkswagen models received the Insurance Institute for Highway Safety's Top Safety Pick award for 2010.

And, our 2009 IQS results improved by sixteen points compared to the industry average ten.

We see ourselves with a unique market differentiation. We are the only European brand that offers an alternative to mainstream American or Asian brands. This is a unique selling point you can't copy.

And, with eight product launches over the past two years, we have the broadest product lineup and compete in more market segments than ever.

Late this summer, we will introduce our Jetta successor. It, too, will be equipped with the clean diesel option.

Our new American-made midsized sedan will join the mix in 2011.

And later that year, we will reintroduce our Beetle with its successor – a true halo product that will reignite the excitement as our new Beetle did ten years ago.

Combined these models will make a true statement regarding our desire to become a volume player in the U.S., while keeping the products that first drew consumers to our brand.

In difficult economic times, a good brand is a protective harbor for customers. They want to know that they will get a good, dependable car for their hard-earned money.

Volkswagen Group believes in the value of strong brands. We have successfully managed a brand portfolio that ranges from high end luxury and jaw dropping sports cars to brands known for economy….as well as light-duty and commercial trucks.

Our dealers believe in our brand too. And, so do our customers.

The recession has heightened customer interest in certified pre-owned
cars. They are willing to pay a premium to have some confidence that they are getting a reliable car.

Dealers who act on this trend can increase profits. Certified pre-owned sales at Volkswagen dealerships increased more than 20 percent last year.

Yes, Volkswagen has high brand awareness in this country, but Americans are not nearly as familiar with our products. Our new advertising campaign and new advertising agency will address that issue head on.

I hope you saw the first of our new ads during last week's Super Bowl. If you missed it, don't worry. There will be more.

Protecting and enhancing our brand plays into our strategy for dealers.

We are very pleased that our dealers are showing their confidence in our future by building more exclusive and branded facilities. They have invested $800 million in exclusive dealerships over the past five years. 75 percent of our sales are through branded facilities.

We have changed the way we do business with our dealers over the past two years. They are active and valuable partners in our U.S. strategy.

We will never sell 800,000 cars in this market without their full commitment. Our success depends on their success.

We want a relationship built on trust.

We have empowered our dealers to solve problems on the spot, without sending customers to an endless series of recorded messages at some far-off call center.

Today's customers want action, not excuses.

Trust means that when a customer needs help, the first question the dealer asks is, "How can I fix this problem?" not, "Who will pay for fixing this problem?"

Dealers have to know that they can trust us to be fair when covering the cost of keeping customers happy.

We're doing a better job of listening to our dealers.

We rely heavily on our National Dealer Council for advice and guidance. In a small but significant change, the dealers now set the agenda for our council meetings.

We do not raise any corporate agenda items until every dealer issue has been addressed.

More than 10 percent of our dealers are actively engaged in these wide-ranging discussions about our business.

My executive team and I also hold annual town hall meetings with dealers in each of our regions.

On travels across the country, we host small, monthly grass roots meeting so that we can readily hear dealer concerns.

And, of course, I enjoy visiting their dealerships.

One thing I've learned about dealers — you are not a shy bunch. The dealers I meet with do not hold back. I don't always like what I hear, but I appreciate the frankness.

I speak my mind, too. When we disagree, we try to find a solution together.

We can see the results of our collaboration in the NADA survey results.

When I came into my role as CEO in 2007, Volkswagen ranked 30th out of 36 manufacturers for overall satisfaction. By the end of 2008, we had shot up to 15th.

Last year, we were seventh. We are not going to stop there.

I was also pleased that Volkswagen achieved our highest score ever on "consideration of dealer input" in the latest NADA survey.

Despite the current economic challenges, more than 80 percent of our 580 Volkswagen dealers are profitable, with a 2 percent return on sales.

I think we are all relieved that 2009 is behind us. Better times are coming, but our industry still faces significant obstacles.

We have not seen the end of the restructuring that the recession accelerated. There are still too many dealerships in the United States for the number of vehicles being sold.

If our industry is to become as efficient as we need it to be, this issue will have to be addressed.

Our ambitious growth strategy will help us deal with that issue at Volkswagen.

Although we plan to double our sales volume in the next three years, we will not significantly increase the number of dealers. Our approach will be to use excess capacity and increase profitability at existing dealerships.

Still, it is clear that tough decisions will have to be made across our industry.

Yes, it is true our entire business is in a period of transition.

But, many things will stay the same.

In the future, OEMs will continue to rely on our entrepreneurial dealers to help grow our business – as we have in the past.

And, dealers will rely on OEMs to create strong brands that draw consumers to their showrooms.

The economic downturn has shown us the power of a strong brand. At Volkswagen our exclusive dealers are by far more successful than those who aren't.

I predict we will see a continued trend toward exclusivity across the industry in the coming years.

After sales will continue to grow in importance. We have seen this with the Internet.

The importance of customer service and satisfaction will not diminish.

Your employees are the frontline ambassadors for the brands you sell.

They must have the experience and expertise to communicate with the sophisticated 21st century consumer.

Invest in your people. It is money well spent.

Ladies and gentlemen, the fundamentals of our business are timeless. So, is the connection between automakers and auto dealers.

You have been a vital part of this industry from the start, and you will be a vital part of it for the foreseeable future. We need each other.

Our industry is woven into the fabric of America. We have had a big impact on American society over the years.

We have done quite well in good times. We can help bring the economy out of these not-so-good times.

It will require hard work. But you are used to hard work. It will require creativity. But creativity is your stock in trade.

Your entrepreneurial drive and your can-do attitude define the American spirit. We need that now more than ever.

Thank you for all you do for our industry. Thank you for giving me this opportunity to speak to you.

About Volkswagen of America, Inc.

Founded in 1955, Volkswagen of America, Inc. is headquartered in Herndon, Virginia. It is a subsidiary of Volkswagen AG, headquartered in Wolfsburg, Germany. Volkswagen is one of the world's largest producers of passenger cars and Europe's largest automaker. Volkswagen sells the Golf, GTI, New Beetle, New Beetle convertible, Jetta, Jetta SportWagen, Eos, Passat, Passat Wagon, CC, Tiguan, Touareg and Routan through approximately 600 independent U.S. dealers. All 2010 Volkswagens come standard-equipped with Electronic Stabilization Program. This is important because the National Highway and Traffic Safety Administration (NHTSA) has called ESC the most effective new vehicle safety technology since the safety belt. Visit Volkswagen of America online at www.vw.com