Dispatches Do Brasil: How Volkswagen Lost the Market, Part II (1990s to Present)

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.