By on March 20, 2015

Lula Inauguração

And then came the 90s.

With democracy finally back, a new Constitution, and new economic ideas and policies forcing the market open, the slow pace of the 80s suddenly gave way to much friskier times. General Motors was the first to make use of the opportunities, they would import systems and brought on the best Opel had to offer. The Corsa was launched and soon had long waiting lists and people paying over list price. It followed Fiat’s plan, a small car with lots of color and accessory options. Two door and four doors. Soon, sedan, station wagon and a pickup version. All highly successful, all putting pressure on the Gol and derivatives.

Fiat reacted and launched the Palio. The Palio gave birth to the Siena sedan, Palio Weekend station wagon and the famous Strada pickup. What did Volkswagen do? They killed the Voyage (the Gol-derived sedan) and ceded that market that was just about to explode to the Siena and Corsa sedan. They finally redesigned the Gol, giving it the same rounded design as Palio and Corsa, but insisted on their mistakes. Again, and inexplicably, that first round Gol only came with two doors, kept the longitudinal engine. Not only that, but there was no more Voyage, and the Parati station wagon was only offered with two doors. That led to a total Palio Weekend dominance of that market. In time it would outsell the Parati 2-1.

The 90s also brought forth the first rumblings in Brazil of Volkswagen reliability woes. As both Fiat and GM small cars gained better and better market recognition for their quality, Volkswagen’s reputation started to sag. Unfortunately for them, this hit at the core of their line, the Gol. The Gol 16v and Gol Turbo were launched to great fanfare. Sporting new engines, they had lubrication issues and most people were loath to keep a Gol 16v past 50,000 km. Meanwhile, both GM’s Family I and Fiat’s FIRE engine lines would go on to great acclaim, being that Fiat cars would routinely beat VW’s in mechanic’s recommendation surveys.

On the regulatory front, Volkswagen seemed to have forgotten how to play. In the 90s, due to new petroleum discoveries, prevailing low prices and maker interest, Brazil would ease up its ethanol affliction and go gasoline. In an effort to keep consumption low, the government cooked up a different taxation regime. Instead of taxing cars based on horsepower figures, the basis would now be displacement. This created a new category, the 1.0 L car. At first, this cars would be exempt from some taxes and at launch they cost the equivalent of US$7,500. As it so happens, Fiat had an engine just like that ready for launch and no more than 4 months after the new tax scheme was announced, the Uno Mille was launched. In the beginning as Spartan as could be (non-reclining front seats, no glovebox cover, 4 speed) and only 48 hp; it was nonetheless a great success.

Other makers scrambled and put forth on the market the best they could. GM launched a 1.0 Chevette dubbed Junior, while Ford foisted a 1.0 Escort, christened Hobby. In a testament to how weak-sauced these ideas were, they were abandoned when their makes got around to launching the Corsa and the Fiesta. Volkswagen? They lobbied hard and got a special exemption for the, wait for it, Fusca. Yes, the Beetle. It made a comeback and was produced. In the 1990s. Though it appealed to older and nostalgic folk, the car was basically a laughingstock for most non VW enthusiasts and even some VW apologists were aghast. After two short years, the car was again pulled, quietly, from the market while VW finally launched 1.0 L Gol.

In the late 90s and early 00s, Volkswagen made a comeback. They launched the Fox and the Polo. However, these again underlined some fundamental problems at Volkswagen Brazil. The Fox was so Spartan at first it hurt. It also came at a time when other Brazilian small cars were vastly improving their interiors. It had an embarrassingly small instrument cluster that was gimmicky and unloved. And again, it was launched as a two door and stayed that way for more than a couple of years. It also began chopping off owners fingers. This happened because the car has rather large and heavy seats and when an owner would try to collapse them back into place, unfortunately the natural position of his hands would be exactly in the place the seat clumped down and fastened. As the scandal hit the press and the press was out for blood, VW defended itself by saying that in the manual it showed how it should be done. The press countered by showing the exported Foxes had plastic protections on the metallic bits, a more detailed manual and a fabric strip to slow the seats moving back into their position. Meanwhile, the Polo was expensive and unapologetic for that as well as easily robbed.

The Volkswagen stance on denying anything wrong continued in those areas, too. This made for a great show. And hammered away at VW’s reputation in Brazil. As time wore on, insurance on Volkswagen cars became pricier and pricier. So much so that the press finally picked up on it. It would seem that at that time all of VW’s Brazilian line was easily robbed. All it took was sticking a screwdriver into the key hole and turning it the other way. That would not only unlock the car, but also turn off the alarm. Besides that, unlike the competition, Volkswagen ignition system was the basic stuff. Meanwhile, other makers in Brazil had some sort of key recognition technology, making the cars harder to start (and rob) if the system didn’t recognize the key. It got so bad that the Parati had insurance quotes of half the car’s asking price. Volkswagen’s answer? The British gentleman, president of VW do Brasil at the time, suggested that Brazilian car robbers had good taste. It would take VW more than ten years to change the system and mark from the factory major systems in their cars… At the same time, the Palio Weekend killed the Parati and the Strada pickup trounced the Saveiro (Gol-derived pickup).

In 2003, Volkswagen reacted. Taking a page from their history, they invited then President Luiz Inácio Lula da Silva to their factory to reenact the famous Juscelino Kubitschek picture. All for the launch of the first flex fuel car. According to them the first in the world (the Ford T would beg to differ). As has been said, history can only be repeated as a farce or as comedy…

However, despite dubious claims, the car did set the trend. 12 years later, all cars in Brazil are now flex fuel and VW got a respite. In another important aspect, they were uncharacteristically quick. In an era when manuals cars are slowly being replaced in Brazil, Volkswagen was the first to launch a mono-automated gearbox in Brazil. This system does away with the clutch, though the mechanical bits are still there, but it shifts for you. Not only that, but its system is better calibrated than Fiat’s so it shifts better. And it’s less expensive than a true automatic.

The Gol too has been modernized. Sitting now on the last generation Polo’s platform, it was launched to great success and gained more distance between it and main rivals Uno and Palio. In the crucial 1.0 L category however, the car had problems right off the bat. Volkswagen erred on the oil specification and the new EA engine would die prematurely. Also, there were problems with the windshield and how it was affixed. Owners would park their cars for the night and the next day would find them in the garage would broken windshields. Though the problems were eventually solved, amid no mea culpas from Volkswagen, this opened the doors a bit more for the competition.

As noted in the beginning of this series, VW once had a market participation of around 70%. As competition grew, Volkswagen showed an unwillingness or incapability of adjusting. Of course, keeping that mark is impossible, but I believe that as result of that, VW was used to setting the template and selling anything it launched. This characteristic has led to its downfall. In 2014 it was third in Brazil, and the Gol lost the sales title. What is the cause of this?

Some have suggested a managerial attitude that borders on arrogance. In a related, but not quite the same reasoning, some think there is a cultural ethos that impedes the company from seeing the writing on the wall and adjusting. Exactly what is so hard about painting your car in metallic colors (like in the 80s)? Or offering up 4 doors when that is clearly what the market wants (a trend that began in the 80s in Brazil and VW only adapted to, with exceptions (!) in the 90s)? Or simply paying attention to the market and not downgrading your car’s finishing (Fox and Gol G4) when everyone else was upgrading?

In the last couple of years, Volkswagen has finally started revamping its Brazilian line. The Polo is gone, and the Golf G4 has finally ended production (Brazil skipped 3 generations of the Golf) and the G7 is now a reality. The Gol G5 (and now 6) has finally joined its peers in terms of build and layout, rendering a good, competitive car, while most of the kinks seem to have been worked out. The up! has come to substitute the Gol G4 and is finally gaining some traction in the market moving into the top 10. However, it could be cannibalizing the more expensive Gol as in February 2015 the Gol placed 8th in monthly sales, and that would be its worst month in 32 years. Also, happily, until now, nothing catastrophic has happened to VW’s all new three-cylinder engine powering the all important Fox, Gol and up! 1.0s.

However, as I have noted before in many articles on the Brazilian car market, our market is undergoing a major change. Private consumers are rejecting entry-level base cars in favor of better equipped cars. Most cars sold to private buyers come with AC, power windows and steering. Not to mention some have the so-called nice-to-have features that do not condemn a deal if not available, but surely move the car faster (especially if modestly prices, most especially if it is part of the car). Chevrolet’s Onix success is no doubt in large part do to one such feature. It comes with a multimedia center in almost all versions. Meanwhile, all Fiat’s Unos and Palios (except those destined for fleets) come with air-conditioning and power steering.

As always, Volkswagen do Brasil has been slow on these fronts. This sort of equipment is optional on most of their small car line and au contraire to competitors’ the lower priced models made for ad purposes seem to be the standard. In 2015, Volkswagen only has to look at its own sales numbers to see how much this new reality is true. The Fox, more expensive than Gol or up!, but better equipped than either, is their best seller so far this year.

The market has also changed in other ways. The Voyage is a smallish sedan when other sedans that compete directly with it are larger (Renault Logan, Fiat Grand Siena, GM Cobalt). Volkswagen has no small CUV à la Ford EcoSport, Renault Duster, Jeep Renegade. It has no minivan, Fiat Idea, Chevrolet Spin, Nissan Livina.

Hubris. The waste of many a good man. Let’s hope Volkswagen can avoid this trap or else the expression that Volkswagen is as Brazilian as feijoada will become as outdated as their leadership in Brazil.

Lula Inauguração

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21 Comments on “Dispatches do Brasil: How Volkswagen Lost the Market, Part II (1990s to present)...”


  • avatar
    bullnuke

    Excellent review of Volkswagen do Brazil, Marcelo. If the model names were edited and replaced with 411, Super Beetle, Rabbit, Dasher etc. this writing would parallel Volkswagen of America. Volkswagen’s pompous and arrogant attitude seems to stem from their previous successes of 40 or 50 years ago. As I’ve said in other posts I was an avid Volkswagen fan boi for the years 1970 until around 1989 – I owned 8 over those years, five bought new. All had their quirks but were simple to repair/overlook as they were dead reliable and of better quality than anything else on the market during that time. But times changed as did the competition. Volkswagen for years marketed products that changed little externally but a great deal within. The Type 1 (Beetle) was basically the same car for a couple of decades but incrementally changed (larger engines, windows, lights, etc.) and still the same basic vehicle from 1949. This company’s success was built on millions of vehicles built to the same basic design; it seems that they lack the ability or desire to take the risks to make competitive changes. When Volkswagen needed to radically change to keep up with the market and regulations (goodbye air-cooling), they handled it poorly. No longer could relatively inexpensive changes be made to a product that was based upon the same vehicle designed decades ago – they seem to be stuck in the mindset of the successful olden days. Volkswagen doesn’t seem to understand this and the inertia and culture of their management prevents competitiveness outside their home market where we are offered de-contented versions of their products.

    • 0 avatar
      jhefner

      Bullnuke; both you and Marcelo seem to have a good grasp of the issues within Volkswagon. It reminds me of other instances where the industry leaders could not see and make the changes needed to stay on top of a changing market.

      Baldwin Locomotive Works; which like Volkswagon was a major builder of steam locomotives sold around the world; could not handle the shift from steam locomotives individually built for each customer to cookie cutter diesel locomotives and folded shortly after World War II. IBM could not see the shift from mainframes to PCs built with off-the-shelf parts and operating systems, and is no longer a major player except with business software solutions. Kodak could not handle the shift from film to digital, and finally folded.

      Volkswagon is far from being in danger of folding like Baldwin and Kodak; but like IBM is seeing their market share slowly erode in many markets; and seemed unable or unwilling to grasp what needed to be done to turn things around; at least until recently.

  • avatar
    dingo426

    Hello Marcelo!

    Great article. This kind of hubris, plus the Brazilian market conditions is what renders Brazilian made VW uncompetitive for exports outside Mercosur/Mercosul.

    • 0 avatar

      Thanks dingo!

      As to exports, Brazilians have exported their cars all over and not just Mercosul. Fiat exports the Strada to Europe still, in the past they exported the Premio, Elba, Palio Weekend. Today I think they export largely to South America though. VW has exported the Gol to more than 60 countries including the US. Even Honda and Toyota use Brazil to export some cars.

      So it can be done, but it largely isn’t. I asked this exact question once to a Brazilian executive of Fiat. When I asked, he countered with another question. He asked me, “Why should I export?”. He told me the cars fetch better prices here than they do anywhere else and almost all production is sold. They simply don’t want to. There is more money to be made here.

      Let’s see how this develops. The market is falling hard this year. And at a moment when a lot of capacity is coming on-line. If the internal market doesn’t pick up soon, we could see some Brazilian companies looking to export again. It’ll be an interesting test to see if companies can export the cars they build here in any great number.

  • avatar
    ect

    Marcelo, I really enjoy your writing, and your insights.

    In business, success or failure almost always comes down to management. When I see that Fiat came to Brazil and roared past GM, Ford and ultimately VW, I’m struck by the fact they weren’t able to do that anywhere else. So, did they really have a star management team in Brazil? Who did this?

    • 0 avatar

      Hey ect! That is a fascinating question and one that should really be studied. I’m sure that some answers could be found and lessons learned.

      I have thought about this before and I think there are a couple of explanations I get:

      – Opportunities and culture. Our market was mostly growing over all this time with some periods of stagnation and even drops. In time of growth, it is easier to manage your company and if you are aggressive you grow fast. Brazilians like innovation and as much as the Fusca was beloved, when the 147 came out it was something else. When the Uno came out and did battle with the Gol, it was clearly a more modern car. When GM came out with the Corsa in the 90s, it sold in droves and it did not pass the Gol only by a miracle and that GM didn’t have enough capacity. Plus Fiat was always so quick here. The Corsa was killing the Uno, and they came up with the Palio that largely neutralized then hands down beat the Corsa.

      In Europe meanwhile the market has grown only in small but over all this time. Harder to manage and grow in such a case. Plus Brazilians are open to try new things, compare this to the case in Europe where nothern Europeans just don’t buy southern European cars. Quality might have something to do with it, won’t deny, but it’s largely a cultural issue.

      – Attitude. I cannot tell you how many times I have talked with Italian people at Fiat and Brazilians. The attitude is completely different. Italians are almost resigned in their attitude of accepting the current situation in Europe while Brazilians are gung-ho let’s change it!

      – Local input. Now, with the crisis in Europe there are more Italians here than there has been in quite a while. For many years this unit was an almost all Brazilian unit. It still largely is. More than competitors. Plus Italians tend to feel more at home here than Germans or Americans or Asians do. Many come and don’t want to leave, even taking jobs at other local companies in order not to do so.

      – Local Fiat culture x Italian Fiat culture. In Europe in many ways a job at Fiat is like a state job. You’ll have to do something really bad to be fired. Here people work their butts off. The company here is just more agile. Brazilians have been taken to Europe (and now the US, too) and tend to do a good job, but they hit a ceiling. I remember an ex Italian president of Fiat (Gianni Coda who oversaw the period when Fiat became first) created quite a ruckus when he was transferred back to Italy because he took with him scores of Brazilian professionals (IIRC around 50, but I could be completely off) exactly because he wanted to cause a stir and shake things up in the home country.

      In Brazil and many developing countries to work at Fiat is a big thing. They attract the best. That could also be something.

      That’s the best I got. Largely impressions. I could be completely wrong of course.

  • avatar
    ect

    jhefner, you’re generally right that many market leaders fall victim to ossification, but some of your examples are not the best

    It seems to me that VW has been growing global sales and market share for several years now. I can recall that, 20 years ago, there wasn’t a great difference in units sales between the 6 leading European automakers, and the overall sales lead changed hands from time to time. Today, VW is far ahead of the rest of the pack, and still expanding its lead.

    IBM is a situation I know somewhat of. IBM well understood the potential of the PC, which is why they went into the market. At the time, though, they were coming to the end of a 13-year antitrust suit brought by the US government that had been enormously costly (to both sides), and to say they were touchy about antitrust issues would be a huge understatement. The PC group was under strict instructions from the very top not to get the company into another such case, and legal was watching to make sure they didn’t.

    This led directly to the decision to license the operating from a third party, and the agreement with Microsoft that IBM’s license would not be exclusive. The rest, as they say, is history.

    Microsoft is another good example in its own right. Brutally dominated the PC market, but totally missed mobile computing – which is now dominated by Google/Samsung and Apple.

    One last anecdote. At an IBM annual meeting one year in the 1970s (at the height of US v. IBM), Chairman Thomas Watson wryly observed that his General Counsel was the only person in the company with an unlimited budget – and he still managed to exceed it.

  • avatar
    Athos Nobile

    Oi Marcelo, I read & enjoyed both pieces. Great analysis.

    I’d love myself some feijoada. And some dizy too, but you probably don’t know what that is (it ain’t Brazilian).

    Something I always remember is how good GM’s product planning was in YV. ALWAYS the right product for the market.

    • 0 avatar

      Thanks Athos. I will look up dizy. GM has our number too. No matter what the Opel widows say, the new GM Korea line is doing very well. In fact they lead in sales to private consuners and have done so for a couple of years now. Their problem is the Celta. Cannot imagine why somebody would buy that over an Uno or Up. Or the Classic. Just not competitive against the old Siena.

  • avatar
    arnesto

    This is my story-in 1962 my friend bought a new VW bug. He told me that there was a guy with a small garage who sold new discounted VW’s. This was in the Buffalo, NY area. So whe i finally went to see him he told me that VW cut him off because he was discounting and got the local franchised dealers pissed. But then he started talking. He told me that VW was cheapening their quality, He pulled up a rear seat and the under padding was some foam held in place with some hanger wire. He pulled out the seat of an older VW han it had thick horsehair hand tied like a sofa. But then we walked into the service bay on the lift was this butt ugly turd. It was called a Datsun Bluebird. He then proceeded to show me all of its new tech like special independent suspension and a lot of other things I did not understand at the time. He said ” this car will put VW out of Business”. I said yeah, sure. I figured he had a case of sour grapes because he could not get any more new VW’s. So I bought a full priced 1963 VW Convertible and got the dealer to throw in an AM radio, an extra side mirror and 2 sets of seat belts. In 1968, I had moved to San Francisco. The tops was leaking badly when it rained. I took it to a convertible repair shop. Later I got a call from the owner, He said that he never saw any thing like it. The struts were made of Wood, they had rotted and turned to sawdust That was the Famous Karmann Factory German Quality for you.. He repaired it by rolling up fabric , It stopped the rain but never looked the same . I sold it a few years later. Ah memories. Nice article you wrote. Thanks

  • avatar
    tresmonos

    Great read, Marcello! This kind of stuff makes this site so unique.

  • avatar
    alvaro74

    Hi Marcelo, great writing! It seems that WV do Brasil has built his whole bussines around the Gol family during the last years in ths part of the world. Here in Uruguay it’s pretty much the same, but it has lost much of its share in this small but interesting market. The chinese, unlike in Brazil and Argentina, are unstoppable here and the Gol has lost buyers to them. Of course there are still a lot of conservative ones who won’t buy chinese (count me among them), but these buyers are shopping elsewhere too. VW has failed to offer what most people really want: room and equipment. A clear example, the hideous Chevy Agile (now thankfully phased out, and for those who have not seen one just google it and you’ll see what I mean). Although being much uglier than the Gol and technically inferior (ancient Corsa B platform that could not match the Gol in driving dynamics) this thing sold more than the VW just because it had more room for people, more trunk space and gadgets like cruise control, trip computer and some others all across the range.Vw still relied on the fact that many still considered the Gol cash on wheels, but this point is getting weaker. Thes cars until recently have been strippers and bottom end versions were very poor in equipment offering nothing but the very basic. People just do not want this anymore

    • 0 avatar

      Thank you Álvaro. I agree. I’m toying with the idea of getting a car in this category again and my main candidates are Uno and Up. Uno because I always wanted one again and Up because it is such an engaging drive, style and is the most economic though powerful. But the Ups are just so stingy, I’ll probably end up with the Uno. The Gol is not even in the running.

      I read about the Uruguayan market on bestsellingcarsblog and I’m amazed how different it is. Agree with you though. Chinese cars can’t compare yet. So, their success even leadership in Uruguay is down to price alone?

      Thanks for the kind words.

  • avatar
    alvaro74

    You’re welcome Marcelo to me it’s a pleasure to read your posts. I think price and standard kit are the reasons that led the Chinese to rule in the bottom end of our market, and that’s of course what those buyers want. Some brands are now well established and others have vanished as usually happens but owning chinese is no longer considered a risky proposition for most people. I’ m not ready yet, I have been a loyal follower of VW but not of the Gol range anymore. My last example was a 2010 G5 and that car fell below my expectations. I loved the design and the vermelho flash paintwork worked very well on that car, it was solid and well made even if the cabin looked dull and quite low cost. The 1.6 engine was really punchy almost from idle and very well suited to my fuel saving driving style, gearchange a delight and handling crisp and responsive. But it was too poorly furnished, a speedo-sized needle instead of a tach, not even doot trim pockets!! VW punished me for buying the less expensive version that way, their policy was that if you could not afford the higher offerings then you should drive a stripped to the bones car.And ride was harsh, wind noise very high (although engine well insulated) all of which resulted in rather poor overall comfort. Enough for me then. About the up!, it’s not on sale in Uruguay yet but it seems very interesting, carefully engineered, well made, but again another stripper from VW.Brazilian media speak aboout high prices and low equipment so it may have a hard time when it goes to sale here because people do not care about engineering, they just want gadgetry and low prices. VW still refuses to understand that even if they have recently added some kit and lowered prices for the Gol range.But do has done the competition, not only the chinese but also Fiat, GM and the French.

  • avatar
    alvaro74

    You’re welcome Marcelo to me it’s a pleasure to read your posts. I think price and standard kit are the reasons that led the Chinese to rule in the bottom end of our market, and that’s of course what those buyers want. Some brands are now well established and others have vanished as usually happens but owning chinese is no longer considered a risky proposition for most people. I’ m not ready yet, I have been a loyal follower of VW but not of the Gol range anymore. My last example was a 2010 G5 and that car fell below my expectations. I loved the design and the vermelho flash paintwork worked very well on that car, it was solid and well made even if the cabin looked dull and quite low cost. The 1.6 engine was really punchy almost from idle and very well suited to my fuel saving driving style, gearchange a delight and handling crisp and responsive. But it was too poorly furnished, a speedo-sized needle instead of a tach, not even doot trim pockets!! VW punished me for buying the less expensive version that way, their policy was that if you could not afford the higher offerings then you should drive a stripped to the bones car.And ride was harsh, wind noise very high (although engine well insulated) all of which resulted in rather poor overall comfort. Enough for me then. About the up!, it’s not on sale in Uruguay yet but it seems very interesting, carefully engineered, well made, but again another stripper from VW.Brazilian media speak aboout high prices and low equipment so it may have a hard time when it goes to sale here because people do not care about engineering, they just want gadgetry and low prices. VW still refuses to understand that even if they have recently added some kit and lowered prices for the Gol range.But so has done the competition, not only the chinese but also Fiat, GM and the French.

  • avatar
    alvaro74

    Sorry, there are a couple of mistakes. The speedo sized needle was for a huge fuel gauge, I forgot to mention. And where I said do has done the competition I meant so has done….

  • avatar
    alvaro74

    And not to mention that I posted the same comment twice! I requested deletion but it is still there…..blame it on my not very smart phone or not too smart user….

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