When the information broke in Might 2022 that VW Group would launch an
completely new model in North America to make electrical SUVs and
pickup vans, the response was principally startled shock. That it
could be known as Scout solely added to the shock. (VW acquired the
rights to the much-loved Scout title with its 2020 acquisition of
Navistar Worldwide.)

The brand new Scout Motors Inc. unit could also be VW’s most bold plan
for US growth in a while. However Dave Mondragon, managing
director and VP of automotive incentive and pricing options for
S&P World Mobility, instantly knew why the automaker was
doing it—and the advantages and dangers accompanying such a
transfer.

Mondragon has labored within the auto trade for nearly 40 years.
He spent most of that with Ford, rising from an administrative job
at an meeting plant to president and CEO of Ford of Canada. He
then had senior management roles in advertising and gross sales for Ford
and Lincoln within the US till 2017, when he joined S&P World
Mobility precursor IHS Markit.

What follows is a condensation of a prolonged interview with
Dave.

Why is VW taking this costly and surprising step of
launching a brand new model?

The story is not simply in regards to the Scout; it is a couple of bigger
sandbox for VW to play in. We see three issues: First, entice new
prospects to your model who would not have shopped the model earlier than.
Sellers like that. Second, it is about retaining prospects already
in your fold—however could migrate out as a result of you do not have these
sorts of autos. And the third alternative is in regards to the pricing
energy of those autos—and never simply the vans themselves however
additionally the equipment. There’s additionally the regulatory influence of promoting
extra EVs as emission requirements get harder and harder by way of the
decade.

OK, speak about attracting new prospects to VW
Group.

VW will not cannibalize its different traces as a result of they do not compete
within the truck house. So, if they’ll add 50,000 or 75,000, or
100,000 whole models, what does it do for his or her market share? It
brings them new prospects, customers who would by no means have set foot
in a VW showroom the best way they’d have in a Jeep or Bronco, or
Hummer retailer. We all know that as a result of we now have knowledge that reveals the place
these prospects come from – what number of are loyalists to the model and
what number of are conquests who’re new to the model and the place they arrive
from.

Immediately, lots of their prospects are taking a look at manufacturers like Ford,
with the Bronco (two-door and four-door), the (compact) Bronco
Sport, and presumably extra variations down the street. Primarily based on the
model’s success, they may proceed to populate autos in that
house. They’re getting extra market share and extra autos in a
phase with a whole lot of enchantment. Jeep did the identical, beginning just a few
a long time in the past.

Do the maths; retaining 50 % of latest prospects to your model
is an incredible alternative for OEMs like VW and their sellers to
develop their income, buyer footprint, and valuation.

Ultimately, perhaps VW will evolve the Scout model to separate
showrooms—if that’s the case, what does that do to the worth for its
sellers? Is it like including a second franchise? While you have a look at the
worth of a franchise for a supplier, you have a look at the automobile traces
they’ve. If an automaker brings one other three autos to market
in these progress segments, the franchise’s worth exponentially
will increase. It is like shopping for two completely different dealerships in a single. If
you have a look at future populations of latest autos out there, the
dealership’s worth could possibly be value far more than right this moment with a brand new
fleet of Scout SUVs within the lineup.

And buyer retention? Particularly since VW Group has
Audi emigrate to?

At S&P World Mobility, we now have a wonderful view of each
model’s future product. We all know if it is EV or fuel, SUV, or pickup.
We see many shoppers shopping for Jeeps or Broncos that may have
migrated away in the event that they did not have these autos.

So, for VW, Scout represents a possibility to enhance loyalty
and retention by having these new autos as a result of they may
fulfill prospects’ wants extra broadly past their present lineup.
And for those who lose these prospects, there is a excessive chance they
will grow to be loyalists for a brand new model—and you will by no means see them
once more. However, alternatively, in the event that they’ve had a superb expertise,
they haven’t any cause to depart. Then they’re going to cross-shop different automobile
traces inside the model or dealership, and over time, many will transfer
as much as their premium model, Audi.

You talked about pricing energy, particularly in
equipment. Clarify?

All our knowledge present that light-duty vans (SUVs, pickups,
particularly 4x4s) transact at larger costs than passenger vehicles.
Clients like them; OEMs like the upper costs they bring about. That is
why we see vehicles ebbing and vans & SUVs dominating. And
off-road-capable vans typically have wealthy margins even earlier than patrons
begin to customise them.

Then there are the equipment. If the OEM manufactures and
sells these elements, the margin—particularly on this off-road
house—could possibly be 50 % or extra. I wager a few of these
automakers are including as a lot as $10,000 value of equipment to
their common promoting value and making a wholesome revenue on
that.

And the supplier’s getting his share too. Sellers love off-road
autos—as a result of the patrons are keen about them. They usually
are prepared to spend extra on personalization; to the client, this
amplifies the expertise; to the supplier, it rings the money
register.

This text was printed by S&P World Mobility and never by S&P World Rankings, which is a individually managed division of S&P World.