Future of the fleet is the electric hybrid with ethanol, says president of Volks – 08/27/2021 – Market

Automakers have seen better days. In the first half of 2021, Brazilian production totaled 1.15 million vehicles, 22% below what was manufactured in the first six months of 2019, before the pandemic, according to Anfavea (National Association of Automotive Vehicle Manufacturers). In 2020, the sector had already suffered the lowest production in 17 years, 2 million units.

The new coronavirus — which first left everyone indoors, in a scheme of social distancing, and then messed up the semiconductor supply chain essential to this industry — has boosted an already bad scenario.

The anxiety to get a driver’s license when turning 18 no longer belongs to the new generations of consumers, more interested in enjoying a service than having a good. Hence the growth in the use of transport applications.

This whole scenario of deceleration, added to local problems, led to difficult decisions for automakers in Brazil. Ford, for example, chose to close production in the country and change the focus of the business, investing in the import of models with higher added value, including sport utility vehicles and commercial vehicles.

Even so, the Argentinean Pablo Di Si, president of the German Volkswagen in Latin America, manages to see two headlights on the horizon, giving a new direction to the automobile industry. The first is cars that run on less polluting energy, with a combination of electricity and ethanol.

The second beacon comes from vehicle subscriptions, a modality in which the consumer does not need to buy a brand new car, but pays monthly to use it for one, two or three years. This without worrying about the costs and bureaucracy that accompany the purchase of a car: documentation, property tax, insurance, maintenance, included in the monthly amount. You can’t call it “cheap”, but it’s less work.

“We took a while, but we managed to reach a model in which the bill is closed to everyone: assemblers, dealers and customers”, says Di Si, for whom this modality has a chance of growing in the next few years in Brazil, reaching 30% of sales.

But what most consumes the executive’s attention at the moment is guaranteeing a place in the sun for Latin America in Volkswagen’s medium and long-term plans. Over the next six years, the German automaker will launch 130 vehicles around the world, 70 of which are electric cars and 60 are hybrids. The group’s electrification projects involve investments in the order of 73 billion euros over the next few years.

“The group is committed to launching electric cars on a global level. But for Latin America this reality is not yet viable, there is no supply infrastructure”, says Di Si. “Here, however, there is ethanol, an excellent alternative”.

In early July, Di Si presented to the Volkswagen board a project in defense of biofuels for the future of the automobile industry. He managed to convince the Germans to establish, in Brazil, a research and development center for technological solutions based on ethanol and other biofuels.

But the decision could have taken place some time ago: the Brazilian branch has been working on alternatives to oil since the late 1970s, when the Proalcool program encouraged this type of work.

The idea now is to bring hybrid engines developed in Europe so that the Volkswagen engineering team in Brazil can create, mainly, versions adapted to ethanol and can serve not only the Brazilian market, but other emerging ones.

Di Si virtually presented the Brazil project to the group of Volkswagen’s board of directors. Traveling less and less to Germany is one of his goals in post-pandemic life. “Meetings work well remotely.”

Anfavea estimates that the lack of semiconductors has prevented the production of up to 120,000 vehicles in the first half and that there is no expectation of normalization of supply until the second quarter of 2022. How much does this affect Volkswagen?

We had some production stoppages and today we have two of our four factories in the country working just one shift — São Bernardo do Campo and Taubaté [ambas no interior paulista]. The reason is something positive: there is a reaction from the Chinese and American economies. There is a very high consumption of computers, cell phones and games, as well as vehicles — the market in China is growing a lot. Meanwhile, the semiconductor industry has limited capacity. We’ve been living this since October of last year. It’s a daily battle, we hope that at some point there will be stabilization.

What has changed the most in Volkswagen’s consumer profile since the beginning of the pandemic?

It has become much more digital, no doubt. I believe that buying online, without the consumer having to go to a dealership, will be an increasingly common practice. And we prepared for it. We launched a new online store, the VW e-store, in partnership with the dealership network, where it is possible to complete all vehicle purchases through the website. There are customers who no longer want to go to the store to see the stock, they sign the financing digitally.

We also launched a digital dealership, DDX – Digital Dealer eXperience. In this case, the customer can discover our entire portfolio through augmented reality, using 3D glasses, and order the car in his own way. And if the customer cannot go to the dealership, he can have access to all of this through the seller’s tablet, which goes to his home or work.

Car rental companies and automakers also created the subscription car service. Is it already an adaptation to the profile of the new generations, more interested in enjoying a good than in having it?

We created the subscription car program last year in partnership with Volkswagen Financial Services. We took a while, but we managed to reach a model in which the bill is closed for everyone: the assembler, dealers and customers. It is a new business model, which offers more convenience and mobility for those who do not want to own the vehicle.

And the best part is that the customer does everything online: select the model, color, contract term, register, send documents, receive the contract by email and make the digital signature. Pick up the car wherever you choose. It is not yet possible to make a forecast of how much the subscription will respond to total sales, but an exponential growth in the coming years is natural, it may represent 20% to 30% of sales.

It is a possibility for the customer to try the car before buying it, to have a greater diversity of options because, after all, owning a car is a high investment. You might want a T-Cross to go to the beach or the countryside, or a Virtus to walk around town. Before, there was no such possibility of varying the model.

In Europe, Volkswagen already works with the shared car system. How it works?

It’s WeShare. The cars are in different parts of the city and you have a signature of the brand. You can open the car from the app on the mobile. It is an even greater convenience for the consumer, it greatly increases mobility. Uber doesn’t always work for all occasions, sometimes I may prefer to stay with the vehicle for a while. I can change cars three or four times a month.

You mentioned that buying a car is a high investment. In Brazil, the number of launches and sales of popular cars, which were at their peak a decade ago, is decreasing. The sale of SUVs is growing, with an average price above R$ 80 thousand. Why does this movement happen?

Cars are becoming safer and safer, with more technology, and that comes at a cost. Companies need to realign their profit margins in view of the drop in volume. Today the sale of SUVs is exploding, while the sale of sedans suffers.

It is true that each time the Selic rate increases, the pressure on the cost of credit for the end customer increases. But consumers have been changing their preferences as well. Our surveys indicate that what counts most for Brazilians today is design, in second place on connectivity, and third on safety.

Before, price was number one and safety was in the top 10 items. All of this counts in the final price. And Brazilians love cars! It pays attention to details, to design. We believe there is room for growth: for every 10 consumers, 6 have a car. We have been negotiating for over 20 years the exchange of the national fleet.

Will this exchange take place through the electric car?

The future of the fleet is the hybrid electric car, which will also run on ethanol. This is essential in a continental country like Brazil, which does not yet have the infrastructure to have an electric car park.

Nobody will want to invest in an electric car, which still costs much more than conventional ones, to run only in the city. Volkswagen is leading the transformation to sustainable mobility and we will become the number 1 brand in electric mobility. Here in Latin America, we started with Golf GTE, plug-in hybrid, in 2019.

But the success of this strategy depends on the charging infrastructure. Last year, we inaugurated a series of 30 electric stations in partnership with EDP within the Plug&Go project, to encourage people to feel secure in opting for a hybrid or electric car in the coming years. Recharging is free and the stations are located along a 2,500 km corridor, which runs from Espírito Santo to Santa Catarina.

Over the next five years, we will launch six hybrid flex vehicles in Brazil. The easy part is launching the car. The difficult thing is to build the entire ecosystem for supply. Until recently, there was no regulation at Aneel [Agência Nacional de Energia Elétrica] predicting electric mobility.

Pablo Di Si, 51

Graduated in Accounting from Northwestern University (USA) and in Administration, with a specialization in Finance, from Loyola University of Chicago (USA), Pablo Di Si started his career in the Volkswagen group in 2014 as the main executive of Volkswagen operations and finance in Argentina . Previously, he held key positions at FCA (Fiat Chrysler Group) in the United States and Brazil. Di Si assumed the presidency of Volkswagen Latin America in October 2017.

X-ray Volkswagen

Foundation: 1937 (in Wolfsburg, Germany)

Factories: São Bernardo do Campo (SP), Taubaté (SP), São Carlos (SP) and São José dos Pinhais (PR)

Employees: 13,000 (2020)

Net Revenue: BRL 25.9 billion (2019)

Main competitors: Stellantis, GM, Ford