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Can Volkswagen turn it around in the U.S.?

VW Automobile AssemblyVW Automobile Assembly

The U.S. automotive market is on a tear in 2014, with first-half sales up 4.3% in unit terms and the seasonally adjusted pace for June better than at any time since 2006. A notable exception has been the sales of Volkswagen, down 22% for the month and 13.4% for the year.

VW’s anemic sales performance in the midst of a climbing U.S. market should be doubly troubling to the brain trust at headquarters in Wolfsburg, Germany. VW executives have asserted that a strong U.S. presence is key to its goal of attaining No. 1 status in the world by 2018.

While the VW brand is leading Europe and surging in China, it’s actually going backward in the U.S., having been surpassed by newer entrants to the market, notably South Korea’s Hyundai and Kia.  The immediate reason is that VW’s car models, while attractive to a small base of fans, are mostly at odds with the preferences of American consumers in size, price and utility.

“Volkswagen has been and continues to be in a new product drought. It simply doesn’t have the vehicles or the breadth of product portfolio to capitalize,”  said Michelle Krebs, senior analyst for AutoTrader.com. VW, for example,“is missing out on the fastest growing segment in the market, the compact utility. It has the Tiguan but it can’t compete with the likes of Ford Escape, Honda CRV and RAV 4.”

While the price of the Tiguan is roughly comparable to a Toyota RAV4 or Honda CRV, its operating costs are about 20% higher per mile, according to Edmunds.com, partly due to worse fuel economy.

The automaker’s Chattanooga, Tennessee plant—opened in April 2011—has been manufacturing a Passat family sedan that is much more competitive with the top performers in its class than a previous European-built Passat. Oddly, VW so far has failed to follow up Passat with a similar-sized crossover, the introduction of which dealers have been urging.

VW dealers in the U.S. are disappointed, having invested heavily in their stores for the past few years with the understanding that the German automaker intended to boost its offerings and modify them to be pleasing to a broader U.S. consumer audience.

Incredibly, the original Beetle was the last VW model to capture American mass-market interest. The Rabbit was actually a Dog, plagued by defects and poor quality.  Earlier VW managements weren’t committed to learning the American idiom, choosing rather to find consumers who favored the VW style that appealed to Europeans.

VW’s luxury franchise, Audi, nearly closed its doors in the early 1990s before bouncing back to become on of the U.S.’s coolest brands, a rival to BMW and Lexus.

“It will be a couple more years before VW’s entire model line is fully refreshed on the new platform system,” predicted Karl Brauer, an analyst for Kbb.com.  “Don’t expect VW’s sales trends in the U.S. to change any time soon.”

Within weeks or maybe a few months the automaker is expected to announce a plan to build the Tiguan replacement, either in Chattanooga or in Puebla, Mexico.  Assuming that happens, the new model won’t reach showrooms for at least two more years.

VW may reach its goal of global sales domination anyway. But the celebration in Wolfsburg will be more joyous if a U.S. turnaround is one of the reasons.