Why Isn't Anyone Buying Volkswagens?

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SUVs may once again be hot, but VW's Touareg is not: VW sold just 552 in the U.S. last month. Source: VW Group

U.S. auto sales rose 11% in May -- better than expected -- and most automakers reported results that beat analyst estimates.

Coming after a very slow start to 2014, those results gave investors a boost of confidence. While automakers had blamed slow sales in January and February on the harsher than usual winter weather, some analysts had expressed concern: Was consumer confidence waning?

Happily for most automakers, that doesn't seem to be the case. But there's one big-name automaker that missed out on last month's surge in sales: Volkswagen .

A massive global growth push that is going the wrong way here
VW is on a massive global push to become the world's largest-selling automaker by 2018. It might well happen: The company has gained a lot of ground in Europe and China over the last couple of years.

But that push isn't going so well here: U.S. sales of VW-brand vehicles were down 15.4% last month. That's not just a one-month fluke, either. Year-to-date, VW-brand sales in the U.S. are down 11.5%. And that follows a 7% drop in 2013. Things have been going the wrong way for a while.

What's the deal?

Part of the deal is that VW is lacking strong products in the U.S.'s hottest market segments -- namely, SUVs and crossovers. New, fuel-efficient SUVs have been luring more and more buyers out of their cars. Most automakers are making hay from that trend: SUVs are generally more profitable than similarly sized cars. 

But it's not working out like that for VW.

The big SUV-sized holes in VW's lineup
VW's U.S. lineup does include two SUVs, the Tiguan and the Touareg. But both sell in very small numbers, and few shoppers seem to even consider them.

Why? Because they aren't competitive. The Tiguan is an old model that first came to market way back in 2007. It's outclassed by much newer and fresher entries from the likes of Honda and Toyota and Ford , and buyers just aren't giving it a look. Honda's CR-V and Ford's Escape are priced similarly to the VW, but each outsold the Tiguan by over 10 to one last month. Toyota's RAV4 beat it by almost nine to one.

VW's Tiguan is a dated model that doesn't compare well with rivals from Detroit and Japan. Source: VW Group

VW's other SUV is the Touareg. It's a close mechanical sibling of the Audi Q7 and Porsche Cayenne -- but both luxury models handily outsell the Touareg in the U.S. by wide margins. Why? Price and features: The Touareg starts at $44,570, and can quickly be optioned up well over $50,000. That's uncomfortably close to the (much nicer) Q7's starting price of $47,700. 

Meanwhile, a Ford Explorer starts at $30,600, with a lavishly loaded top of the line model coming in around $47,000. Maybe that's why Ford sold over 20,000 Explorers in the U.S. last month, while VW sold just 552 Touaregs. (No, that's not a misprint.) 

Sales at other VW Group brands have been strong
At the corporate level, it's not all bad news for the Volkswagen Group in the U.S. Sales at VW's Audi luxury brand are up over 11% so far this year. 

Of course, Audi's U.S. lineup has two well-regarded SUVs, the Q5 and Q7 -- and the Q5 is the brand's best-seller here. 

Another VW Group brand, Porsche, has also seen strong sales this year. About half of Porsche's sales come from the Cayenne -- which might be the world's most profitable SUV. And Porsche just rolled out a new smaller SUV called the Macan, which is based on Audi's Q5. 

The Touareg doesn't sell very well, but its plusher and sportier corporate sibling, the Porsche Cayenne, accounts for about half of Porsche's global sales and a lot of its huge profits. Source: Porsche

Audi and Porsche together account for the vast majority of VW Group's automotive profits. In the first quarter, the two brands represented about 17% of the Group's worldwide vehicle sales, but contributed over 90% of its operating profits from passenger cars. 

The profits from Audi and Porsche allow the VW Group sell its mass-market VW-brand cars with razor-thin margins. That's a big part of why VW has gained market share in Europe and China recently. 

But it's not working here in the U.S. And it may not work until VW gets its American dealers the products that buyers want.

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The article Why Isn't Anyone Buying Volkswagens? originally appeared on Fool.com.

John Rosevear owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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