German carmakers buoyed by boost in US sales

German automakers are revving up for an aggressive push to expand their customer base in the highly competitive US market and will unleash a slew of hot new products at the Detroit auto show this week. While BMW and Mercedes-Benz dominated the luxury sector last year -- overtaking struggling Lexus for the top two sales spots -- Volkswagen (VW) witnessed a double-digit growth in the mid-size segment. "German products look very strong here right now", said David Cole, chairman emeritus at the Center for Automotive Research, applauding German firms for their swift response to US market trends such as the growing demand for fuel-efficient cars. The traditional stronghold of the German auto industry are high-end brands such as BMW, Mercedes, Audi and Porsche. Battling for the US luxury car crown in 2011, BMW finally claimed first place with a narrow lead of some 2,600 vehicles over Mercedes. The two Teutonic giants overtook Toyota's Lexus, champion of the past 11 years, which suffered from the supply chain disruption caused by Japan's devastating March 11 earthquake and tsunami. BMW reported its sales rose 12.6 percent in 2011 to 247,907, while Mercedes announced a 13.3 percent gain to a record 245,231 vehicles sold. For VW's luxury unit Audi, 2011 marked the best year ever on the US market, with 12 straight months of record-setting sales and 117,561 vehicles leaving the showrooms. The fallout from the tsunami had an impact, but it was not the main reason for the strong performance of German automakers, said Michelle Krebs, a senior analyst with Edmunds.com. Instead, she cited the launch of new models and an aggressive use of incentives to woe customers. "This is a trend that has been going on for a number of years," she said. "The US has become a very important market for German automakers and especially for luxury automakers." Then there is VW, which caters to the mid segment and tries to live up to past success in the United States. Lead by the iconic Beetle, the automaker expanded rapidly in the 1960s, reaching five percent market share before it was overtaken by Japanese competitors in the 1970s. By 1993, VW's share had sunk to a low of 0.44 percent. "VW has a burning desire to become the number one carmaker in the world", Krebs said. "And in order to do so, you need a strong presence in the US." The Wolfsburg-based company has set ambitious sales goals of 800,000 VWs and 200,000 Audis annually by 2018. Last year, VW sales totalled 324,402, up 26.3 percent over 2010. A major component of VW's push is a $4 billion investment in US products, which includes the construction of a $1 billion dollar plant in Tennessee that opened in May with the capacity to build up to 150,000 vehicles a year. By producing on US soil, VW hopes to keep in touch with local market trends and avoid exchange rate fluctuations. Mercedes and BMW also have manufacturing facilities in Alabama and South Carolina respectively, shielding the companies' business in the US from the strong euro. "To be competitive here, you have to be price competitive", Krebs said. VW also revamped its marketing and focused on improving its customer service and overcoming quality problems, which tainted the automaker's image for years. In that regard, Volkswagen may have benefitted from Toyota's massive recalls over problem gas pedals which began in 2009 and continued through 2011. "There was a lingering perception of superior Japanese quality, and that basically disappeared with the Toyota problems", Cole said. Despite the strong growth figures, German carmakers still play a marginal role in terms of overall market share. VW, including its daughter Audi, is currently in ninth place with 3.4 percent of the 13 million vehicle market while Mercedes tied with Mazda for 11th place with a 2.0 percent share last year, according to Autodata. Porsche barely registers with just 0.2 percent. By comparison, top ranking GM had a 19.6 percent share in 2011, followed by Ford at 16.8 percent, Toyota at 12.9 percent and Chrysler at 10.6 percent.