You'd Never Know Volkswagen Is Growing 21% In The U.S. Post-Dieselgate

| About: Volkswagen AG (VLKAY)
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Summary

Leading up to Dieselgate, VW’s U.S. diesel sales were over 20% of the mix. However, in 2016, VW’s U.S. sales fell only 7.6%.

Now, overall, VW U.S. sales are up 21% in the last three months, and in December, up 13.8% globally group wide.

The Tiguan led U.S. sales growth with 42% in 2015, 22% in 2016 and 20% in the last three months alone.

I drove the outgoing age-old Tiguan (introduced 2007) and amazingly it holds up extremely well much thanks to Android Auto and Apple CarPlay.

This bodes very well for Volkswagen’s introduction of two all-new larger SUVs to the U.S. market this 2Q and 3Q.

September 18, 2015, marked the beginning of the costliest affair in all of corporate history, Volkswagen's (OTCPK:VLKAY) VLKAF) Dieselgate. VW had just reported August 2015 U.S. sales, where diesel constituted 22.9% of the total: here.

The month prior, VW's U.S. diesel sales had been 25.7% of sales: here.

The list could go on and on, but you get the point: Diesel had been running at over 20% of Volkswagen's U.S. sales, and one would think that as a result of banning diesels, sales would be down at least 20%, right? One might think it would be down even more, given some collateral brand damage.

As it turns out, it was not. Volkswagen's 2016 U.S. sales were down only 7.6%: here.

Basically, Volkswagen lost of all its U.S. diesel sales - over 20% of its total - but apparently two thirds of those buyers simply bought a non-diesel Volkswagen instead. Alternatively, Volkswagen managed to gain market share dramatically from all the other automakers, counting gasoline-only sales. Either way, that's an amazing feat that I don't think anyone predicted.

One might also say that the regular consumer simply doesn't give a hoot about the diesel issue. The customers simply love Volkswagen, and increasingly so. If they aren't allowed to buy diesel Volkswagens anymore, two-thirds of them just buy a gasoline Volkswagen instead.

But back to the numbers. Now that we lapped the U.S. diesel "ban" anniversary, can we assume that Volkswagen's 7.6% U.S. sales decline for 2016 has simply improved to zero, thereby performing in line with the overall U.S. light vehicle market?

We now have three months of evidence under our belt: January 2017, December 2016 and November 2016. Let's look at the numbers:

Volkswagen USA

current

change y/y

prior year

January 2017

23,510

17%

20,079

December 2016

37,229

20%

30,956

November 2016

29,672

24%

23,882

TOTAL

90,411

21%

74,917

As you can see from the table above, VW USA has knocked it out of the park in each of the last three months, growing an average of 21% year over year. In a market that's essentially flat year over year, that now puts VW USA among the fastest-growing auto brands in the U.S. market. Who knew?

Now that you have learned that, to everyone's great surprise, Volkswagen has become a hyper-growth automobile brand in the U.S. again, wouldn't you like to know what has caused this sales renaissance? I thought so!

In the interest of time, I'll cut straight to the chase: It's the Tiguan SUV that has been the most consistent Volkswagen outperformer in the U.S. market - not only in the last three months, but also throughout 2016 and 2015. Let's start with the last three months:

Tiguan USA

current

change y/y

prior year

January 2017

3,516

39%

2,528

December 2016

5,575

14%

4,900

November 2016

4,516

16%

3,907

TOTAL

13,607

20%

11,335

As you can see from the table above, during the most recent three months, VW's U.S. Tiguan sales growth was almost identical to VW's overall U.S. sales performance. I'll get into that in just a second, but first we have to rewind the tape and take a look at all of 2016 and 2015 for U.S. Tiguan sales:

Tiguan USA

current

change y/y

prior year

2016

43,638

22%

35,843

2015

35,843

42%

25,181

TOTAL

79,481

30%

61,024

As you can see from the table above, unlike Volkswagen's 7.6% U.S. sales decline in 2016, the Tiguan was actually up 22%. And in 2015, up a whopping 42%. Those are some of the largest sales increases of any volume car in the market, let alone being able to post them in the middle of the Dieselgate storm.

So back to the issue of Tiguan "only" performing in line with Volkswagen's overall U.S. sales increases during the three most recent months: Why?

One side to the equation is that the rest of Volkswagen's U.S. post-Dieselgate anniversary caught up, making the year-over-year comparisons dramatically easier. The Tiguan has never been sold as a diesel in the U.S. market, whereas most other Volkswagens were.

The second side to the Tiguan relative growth equation is that the current Tiguan that's sold in the U.S. market is only a few short months away from being replaced by an all-new Tiguan. The current Tiguan entered production in 2007, so this will be a full decade without an all-new replacement. That's a very, very long time.

Given its extreme old age, it's basically surprising that the current Tiguan is selling at all.

The Tiguan that launched in 2007 was already replaced in Europe as the all-new model started selling there in April 2016. The U.S. market will get a version of the Tiguan that is a few inches longer than the European version in order to accommodate an optional (tight) third row of seats, and this model should be stocked in U.S. dealerships in the third quarter of 2017.

I recently got the opportunity to drive the outgoing VW Tiguan in order to conduct its "exit interview" ahead of the U.S. launch of the all-new, much larger, Tiguan, this summer. What I found surprised me.

Usually when conducting an exit interview for a car that's going out of production, it's like driving a 90-year-old person on the way to the hospice. It's just not a pleasant experience, and you feel sorry for the whole thing.

Since the middle of 2015, there has been a particular reason why driving an outgoing model has felt particularly sad. That reason has been that the infotainment system on the outgoing car usually did not have Android (NASDAQ:GOOG) (NASDAQ:GOOGL) Auto or Apple (NASDAQ:AAPL) CarPlay. That meant that the infotainment system was terrible, and was about to be replaced with the latest and greatest. It has become something that's reaching top of mind for an increasing share of consumers.

The Volkswagen Tiguan is the rarest of exceptions to this rule. It obtained an all-new infotainment system in the second half of 2015, for the 2016 model year, which has Android Auto and Apple CarPlay.

This means that when I stepped into this otherwise decade-old car, the one item that usually stands out like a sore thumb - even on a two-year-old car now - actually seemed 100% fresh, on par with the newest cars in the market. How refreshing is that?

And I wasn't driving a loaded Tiguan either. In fact, I drove the cheapest entry-level model available in the U.S. market period - the front-wheel drive-only version for $25,860 before dealer discounts that often average well above 10%.

However, even this base model didn't lack almost anything I could possibly want. Yes, it didn't have a heated steering wheel or a cooled driver's seat, but that was about it. I looked at any reason I would pay more for a better-equipped Tiguan, and I couldn't find anything compelling.

So other than having a fully up-to-date infotainment system, how does the old outgoing VW Tiguan hold up? The answer is, surprisingly so, very well indeed. From the rich steering wheel to the overall driving dynamics, the seat and seating position, and the overall quality feel, this outgoing Tiguan feels up-to-date and on par with the handful of very best competitors.

And by those best peer group leaders, I mean the Kia (OTCPK:KIMTF) Sportage, Hyundai (OTCPK:HYMPY) Tucson and Ford (NYSE:F) Escape. I have not yet driven the all-new Honda (NYSE:HMC) CR-V, let alone the all-new Chevrolet (NYSE:GM) Equinox or GMC Terrain that will become available in the second quarter of 2017.

Tiguan verdict: The miracle retiree athlete.

You'll see on the web and on late night television real or imaginary stories about 85-year-olds who are said to have physiques of 20-year-olds, either through exercise or some miracle diet or pill. This retiring Volkswagen Tiguan feels like the automotive equivalent to this old miracle athlete.

Is the U.S. an anomaly for Volkswagen?

This article has dealt with the fact VW has increased its brand sales in the U.S. by 21% over the last three months. However, does this still hold if we apply the broadest measure of VW sales globally? That would include not just all geographies, but also the other brands in the VW Group portfolio, such as Audi and Porsche.

By this measure, Volkswagen ended 2016 on a great note. Sales were up 13.8% in the month of December, and ended the year at 10.3 million units sold. That meant that for the 2016 year as a whole, sales were up an acceptable 3.8%: here.

Clearly, Volkswagen Group globally isn't performing nearly as well as its U.S. VW brand business right now, but that still counts as a most acceptable result, especially during the first full calendar year of the post-Dieselgate situation. And this was not what I think anyone predicted a year ago.

Disclosure: I am/we are long GM, F, GOOGL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: At the time of submitting this article for publication, the author was long GM, GOOGL and F. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers. VW provided a Tiguan for review.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.