MT Interview: Alex Smith, MD Volkswagen Group UK

Volkswagen Group UK now sells almost a quarter of all cars sold in the UK through the Volkswagen, Audi, Skoda, Seat and Cupra networks. Motor Trader talks to managing director Alex Smith on dealer strategy, the agency model, investment in EVs and plans for the future

Alex Smith has to deal with a lot of big figures. As managing director of Volkswagen Group UK he looks after five car brands – Volkswagen, Audi, Skoda, Seat and now Cupra – whose collective 2021 sales equalled 372,054 and a whopping 22.6% market share.

Many of those brands are a big deal in their own right too. Last year, for the first time ever, VW took the number one spot in total UK passenger car sales with 145,519 registrations and a 8.8% market share.

Audi was number two overall and number one in the premium segment with sales of 117,953 equating to a 7.2% market share. With Skoda (55,561 & 3.4%), Seat (43,043 & 2.6%) and relative newcomer Cupra (7671 & 0.1%) making up the bulk of the rest, plus Volkswagen Commercial Vehicles (34,182 & 9.6%), there’s much for Smith to be pleased about. But a lot to juggle too.

Despite the time that must take, 47-year old Smith, who’s been in the post since 2019, spared a long lunch break in late June with Motor Trader to talk product, dealer strategy, agency changes and EV charging.

“The fantastic thing about my job is that each brand in front of the customer is distinct and standalone,” he begins. “Each one has different priorities and opportunities at any given time, but you can work with different dealer and ownership structures and we can still benefit from economies of scale.”

The Group currently has 601 dealers, which seems like a lot until you read the split between brands – VW Passenger Cars (178), Skoda (129), Seat, including Cupra (116), Audi (115) and VW Commercial Vehicles (63).

Asked whether that’s too many or too few he quickly replies: “I think it’s about right. As consumer behaviour develops over the next decade we’ll see how it goes, but as we sit here today, I would say the dealers are in the right right place and we’re happy.

The customer convenience factor to service is hugely important. We assess that in terms of drive time with a ‘convenience ranking’ for every location versus other similar brands in the area. Designing a network, we want to be as, or more convenient than anybody else.”

In the most recently published NFDA Dealer Attitude Survey of Winter 2021/2022, dealers representing Smith’s handful of car brands placed their manufacturer neither right at the top nor right at the bottom.

Those with VW franchises appear to be the happiest overall, consistently ranking their brand in the middle for most things, directly followed by Audi, whose dealers are very happy about some things (current profit return, in the top five) and less happy about other factors (like the manufacturer taking dealer views into account, bottom ten). Skoda and Seat sit a few places below their higher-selling brand brothers with Cupra dealer opinions not specifically pinpointed yet.

Where the Audi and VW brands rank higher with dealers is in their alternative fuel vehicle offering, no doubt due to the early roll-out of full EVs including the VW ID.3 and ID.4 and Audi Q4. Interestingly on this question Seat dealers are most unhappy (bottom three) reflecting the Spanish brand’s current limited offering in this market.

But generally Smith sounds very confident in the Group’s ability to deliver credible future electric products and its broader climate change strategy. “The emphasis within the organisation on electrification is absolute,” he says firmly. “There’s been €89bn of investment within the next five years on future-oriented topics, and the majority of that is in electrification. The VW Group was the first manufacturer to sign up to the Paris Climate agreement, with balance sheet carbon neutrality by 2050. VW vehicles are responsible for 1-2% of global carbon emissions, but that’s tremendously motivating in the material impact we can have to zero carbon mobility. If you add in our colleagues at Porsche GB, we sold more battery-electric vehicles in the UK than any other automotive group. It’s was nice to get that number one spot too and that positivity is reflected in the NFDA survey, but I also think there’s a pride in the Group’s strategy for decarbonising their own businesses too.”

From other lips this could sound like corporate ‘greenwash’ but perhaps because the Group took the biggest financial and reputational hit of all the global car brands after the 2015 dieselgate emissions cheating software scandal, there’s a sense that many of the individuals left in the company really do want to effect positive change.

Smith points to the Group giving practical help to dealers wanting to reduce their business CO2 emissions in many ways. “Picking a supplier capable of providing renewable energy is usually job one,” he says. “Then after that, there have been multiple examples of dealers installing LED lighting and reducing water usage.

West London Volkswagen, which opened in 2016, was conceived with a load of energy-saving measures in place, including escalators that switch off when not in use. Our parts warehouse near Tamworth has photovoltaic panels on the roof and we use biodiesel for our delivery trucks.

We have an in-house tool to enable a carbon footprint assessment and can put them in touch with consultants for the nitty-gritty. We use renewable energy at our head office and invite our network to join our purchasing power with those suppliers, so they can access the best value electricity.”

Smith also points to the Group’s initiatives to improve the UK’s currently patchy charging infrastructure. VW has a branded relationship with 500 Tesco stores offering free charge-ups via 400 7kW and 100 22kW Pod Points and available to any car marque.

here’s also a partnership to roll out 1,000s of high-powered chargers on BP forecourts and the Group is a shareholder in the Ionity charging network too. “Through these three ventures we’re playing our part,” Smith continues.

“We need an interoperable, ubiquitous charging infrastructure but I don’t think range anxiety really exists to the extent it did two or three years ago. What we’ve got now is ‘charging reliability anxiety’.”

At this point it seems fair for this journalist, without off-street parking or a home charger, to ask Smith if he has. He confirms he does and is quick to concede, “so it’s not real life for me is it?” But the Group’s effort in trying to improve things is still laudable and he sees the UK government launching its infrastructure strategy as “good progress” and praises the SMMT for “being proactive in setting out an industry position in terms of charging requirements.”

Audi has just launched a smart charging hub in Germany for those without convenient local options to fast-charge, like a branded, slightly smaller version of Gridserve. Could that be an option in the UK I ask? Smith says it’s a case of “watch this space”. And how about the hub being tacked on to a dealership site in the right location and manned by dealer staff to create another opportunity to catch up with a customer in a non-sales environment over good coffee and sitting in a nice chair. “Potentially,” is all Smith will say for now.

It’s widely known that VW, along with some other brands operating in the UK, are moving to a more ‘agency’ approach to some sales, where the manufacturer takes on more of the (increasingly digital) customer interaction relating to orders, pricing and payments and the dealer completes the more physical aspects (test-drive, vehicle handover etc.).

What does Smith have to say about VW’s moves into this arena? “We’ve said we will introduce the agency model for our battery electric vehicles to retail customers,” he confirms. “But whatever the contractual relationship is, it doesn’t change the need for a customer to receive a fantastic physical experience when they want. It’s difficult to deliver a test drive inside a computer or deliver a car without humans bringing it to you.

“Then you need a really high quality, professional and convenient physical network. I don’t see how changing the contractual format of how the car is transacted makes any difference to where those physical touch points are and how many there are.

“You mentioned the decreasing servicing and parts options in EVs, but there will still be a significant combustion engine vehicle parc for a long time. And it’s important that with our dealers, we continue to deliver fantastic service to combustion engine car owners so they stick with us and our dealer network through the remaining life of their vehicles.”

In that regard, Smith says all the Group’s brands are increasing their market share, enabled by the ‘All In’ subscription-based aftersales product primarily aimed at cars three years and older. Although the agency model is a current ‘hot potato’ topic, he points to previous precedents within the Group he feels ought to make it less contentious. “It’s nothing new within this building,” he says.

“My first job here was Group parts operations manager, and we set up TPS (Trade Parts Specialists) in 2006 as an agency contract to serve the independent aftermarket with genuine parts. It’s a very significant business now.

“We’ve also been running an agency contract in the fleet world for a decade, so it’s nothing new in our relationship with our dealer network. It’s the first time we’ve done it in a retail arena, but it’s the third time we’ve done it as a working concept. These things only work if you have close collaboration and are prepared to see it as a partnership working in the best interests of the customer.”

But with the emphasis so firmly on EVs – which by dint of their current high purchase price only make financial sense to about a third of the UK new car market – how does Smith see the role of the Group, and Volkswagen especially, as literally the ‘people’s car’ brand, in providing electric transport for the masses? “The transition to electrification is full of opportunities but also a few challenges.

“The threat to affordability is to some extent obviated by very strong EV residual values and the vast majority in the UK are bought on a residuals-backed finance agreement, so it helps. But at some point that will become an issue for those who have traditionally bought in the lower segment wanting to change their vehicles. In essence, we want to keep the customer as loyal to us as possible through that lifecycle.”

As md of Nissan Motor GB from 2016-19 Smith has experience of earlier entrants to the full EV market – in the shape of the Nissan Leaf – and has witnessed that initial retail-biased market change, via recent favourable company car tax breaks, to a greater fleet mix.

“e’s also interested in potential future business models that might mean keeping a car longer and changing the software via ‘over the air updates’ and/or unlocking extra features. “It’s an exciting possibility given that for the last 100 years [in terms of its specification at purchase] the car a customer acquired was static,” he muses. “Now a customer can update features in their vehicle as they go through its lifecycle.

My kids are 21, 19 and almost 17, and are all quite keen on consuming less. But the depth of their consumption when they want to, is quite deep, so it will be interesting to see what happens over the next few years in terms of consumer attitudes around how long things are kept, given they can now be updated more frequently.”

Despite the responsibility of his clearly huge job, in person Smith seems calm, human and reasoned in his responses, only getting mildly riled when I suggest that some early ID models might have needed more software updates than originally planned due to widely reported early glitches.

“The latest version of our software has had very positive feedback,” he says with a smile. He appears to be fairly informal too, relaxed enough to conduct the interview in VW UK’s HQ foyer, while the photographer gets the lighting right (and although a board room and outdoor terrace were options).

He’s also willing to share funny anecdotes – like when a can burst inside his first car, a late-80s Fiesta 1.6 diesel Popular Plus and coated the entire cabin with Coca-Cola mist – and happily reveals that he loves to unwind from work by listening to jazz music, especially Pat Metheny, and playing the drums.

Ultimately, in this time of great change within the wider industry he does just seem to want happy staff, customers and dealers. “It’s about ensuring the customer can do what they want when they want, online, offline or a mixture of the two,” he says.

“Being able to facilitate the customers’ movement between the two in the way they want, is going to be an important deciding factor. It’s also about whether someone connects on a human level. Are we responsive and do we care?

“It sounds a little bit fluffy and non-specific, but what’s fundamentally important is that the sales person, or product specialist’s orientation is towards the person they’re serving and the product and brands they’re representing.

“You can’t come up with a blueprint, but you can find warm and strong attitudes absolutely anywhere, male, female, regardless of ethnic background or sexual orientation. There are some dealer groups with an increasing focus on inclusion which really helps broaden the potential employee base. I think it’s important we show that the automotive industry is a place where anyone can succeed.”