Volkswagen is attempting the tricky task of convincing consumers that its cars aren't expensive to own by reducing its bumper-to-bumper warranty program. The warranty is currently good for six years/72,000 miles, but starting with the 2020 model year, VW will reduce the warranty to four years/50,000 miles but add two years of free maintenance. The automaker will also be rolling out a new retail advertising program in the first quarter of next year that will pay dealers up to $200 per vehicle to cover local advertising costs, which should help with their profitability.
Duncan Movassaghi, VW's senior vice president of sales and marketing for North America, explained the changes to Automotive News. The company started the 6/72 warranty in 2017, in no small part to reassure consumers in the wake of VW's diesel emissions cheating scandal, but having now evaluated the results, the automaker feels that combining a shorter warranty with a free maintenance program will yield better consumer satisfaction and greater profits for dealers. Movassaghi said that dealers will be paid for the maintenance program at full warranty rate, which should offset any losses from lost service contracts on fleets. According to John Luciano, general manager of Street Volkswagen in Amarillo, Texas, the long warranty was actually hampering service and extended warranty contract sales.
Also, internal evaluations showed that the longer warranty never became a big factor to consumers, particularly to those whose leases were shorter than the coverage.
"It was a good package, but we felt that there was a better way to use the resource," Movassaghi said.
VW hopes the new program will increase leasing, as well as sales to customers who seriously consider total cost of ownership. The 4/50 warranty will be transferable.
Up till now, VW has not had a Tier 3, or local co-op advertising subsidy for North American dealers, instead leaving sufficient dealer margin in the sticker prices to cover those costs. Starting next year, Volkswagen will cover half of the costs of Tier 3 marketing, up to $200 per vehicle.
"This is designed to be a genuinely helpful program to support costs, of course, because a lot of the dealers are spending this sort of money anyway. So this will support their costs, but it will also encourage a good level of Tier 3 investment,” Movassaghi said.
According to surveys from NADA and brokers, VW dealers have among the lowest profit margins of any major car brand in North America, with many of the shops clearing just a 1 or 2 percent margin on new car sales.