Imagine if Wal-Mart were really popular in Berlin. Not with everyone in Berlin. Just artists and academics. Why? Because they really love the blue vests. To some degree this mirrors how Americans perceive the Volkswagen brand. Despite being a massively successful global automaker, it has continued to struggle to broaden its reach beyond the relatively small but loyal following it has cultivated in the U.S. This extreme asymmetry, and the resulting disconnect, largely explains how VW has gotten itself into such trouble here.

By "trouble," I'm not just referring to Dieselgate. Volkswagen has been confronting massive challenges in North America long before this whole diesel mess started smoking. It has invested heavily here, building manufacturing facilities and rolling out new American market-tailored products, only to see sales fall despite steady growth for the U.S. auto market as a whole. Why has VW failed? Because it doesn't see itself as Americans see it.

Volkswagen has never been perceived here as a mass-market brand along the same lines as Ford, Toyota, or Chevrolet. It has always been inextricably linked with the Beetle, Microbus, and the counterculture hippies of the 1960s who drove them. More recently, its small cars and diesel-powered models have appealed primarily to progressive coastal urbanites.

Nostalgic baby boomers and urban elites. Not a bad niche. To get a sense of what Volkswagen might have made of that niche one need only look to Subaru. Fifteen years ago, Subaru was a tiny brand in America with a customer base similar to Volkswagen, albeit much smaller. Subaru wholeheartedly embraced its loyalists. It focused its lineup around its popular crossovers, trumpeted all-wheel drive, and reminded us all that "love" is what makes Subaru a Subaru. It quietly improved aspects of its vehicles that limited its audience, such as poor fuel economy and interior quality, but never strayed far from its core. The result is that while Subaru is still perceived as a niche brand it's grown that niche to nearly 515,000 vehicles a year in the United States, about 40 percent more volume than what Volkswagen moves.

See All 6 Photos

It's not like VW didn't have its chance to do something similar. Two decades ago, Americans went absolutely bonkers over the New Beetle, a car designed by Americans (Freeman Thomas and J Mays) that was reminiscent of everything Americans love about VW. In the years after its introduction, VW sales here blossomed. The natural follow-up would have been to build on the Beetle buzz with more variants. A new Microbus seemed like a no brainer, as it would have pressed all the same buttons as the New Beetle while providing the utility Americans demand.

What Volkswagen did instead was ignore Beetle until the "New" preface became ironic. By the time the car got a halfhearted redesign, an absurd 15 years later, the Beetle buzz had been squashed. The Microbus popped up as a concept but hasn't made it to production.

See All 6 Photos

The models Volkswagen did develop for the American market, the Passat and Jetta, were the exact opposite of distinctive. The logic was that this country loves dull and relatively cheap Japanese cars, and thus would eat up similar blandness from Volkswagen. But Americans are smarter than that. They buy Japanese cars because the Japanese have built reputations for being reliable and cheap to maintain, two things Volkswagens have never been known for. No surprise, Honda and Toyota buyers passed on the unproven German versions of what they already had.

That left the small clique of devoted enthusiasts, folks who bought Volkswagens because they were Volkswagens, and often because they were Volkswagen "clean" diesels. These are precisely the people Volkswagen just kicked in the teeth.

Volkswagen's only hope to succeed in the United States, after the nitrogen-oxide-laden dust has settled, is to finally recognize that it is not a mass-market brand here and never will be. It needs to find talented American marketers and product planners who understand what the brand means in this country (some of them already work for VW), and it needs to listen to them.