This may be a reach, but I honestly believe that VW killed their business in America by pivoting too much towards the U.S market. It already happened once- in the early/mid 80s customers and reviewers slammed the Volkswagens made in the Westmoreland, PA plant, as having too cheap an interior with too soft suspension, both features designed to cater to the American market. To quote the Wikipedia article,

"Neither buyers nor company executives in Germany were pleased with the Americanization of the Rabbit using a softer suspension, less expensive interior materials and decidedly un-Germanic color-keyed interiors.^([19]) Popular Mechanics said "inside is where you really see the Americanization of the Rabbit, the interior is comfortable but puffy. In fact, it's downright tacky"^([17]) – adding that the side marker lights on the Rabbit looked as if they "came off a kid's bike."

It's worth noting that the decline in Rabbit and Jetta sales from this time period was also in part due to the declining popularity of small cars in the wake of the fuel crisis ending. But still, VW's sales began to rise again once they reintroduced the character they had. Volkswagen is arguably one of the only mass market car brands that was ever able to sell their cars based on character. Hagerty did a great section on this in the it VW ID Buzz video. Think about it. Before they discontinued it in the US, was the regular old Golf really any better on paper than the Corolla to most buyers? Not really. VWs reputations for reliability and quality ihave always been checkered to say the least, and their cars aren't packing the most advanced new features either, nor are they notably cheaper. The one advantage VW ever had in their normal, non-performance cars was the TDI models' mileage, longevity and getup, and even then those diesels had a very special character element to them. VW was the only maker of mass-market diesel cars in the USA, just like they were the only maker of wagons in recent years, one of the only makers of mass market manuals, and had a unique style to all their cars. The sporty attitude. The plaid seats in GTIs. The premium features that only VW offered in compact cars for the longest time (power leather seats were optional in MK4 Jettas and B5 Passats).

Where VW went wrong, besides the fiasco of Dieselgate and lying to thousands of customers and several world governments, was in getting too greedy and trying to increase their U.S sales volumes by American-izing their cars. To be fair to them, Volkswagen's sales had cratered after trying to pivot their brand to a more premium standing in the U.S market. The Passat is the perfect example of what happened to Volkswagen. The Passat became too premium and too expensive, so VW lowered it's price made an Americanized version without everything that made it worth buying over, say, a Camry or an Accord- the wagon versions, the AWD versions, etc. The Passat Alltrack's they sold in Europe would've sold like hotcakes here, especially with an optional TDI engine- the only other options in the "lifted AWD wagon" marketspace were Volvos and the Subaru Outback. Until recently Subaru sold the only AWD midsize sedans and compact cars, while VW had been selling AWD Golfs, Golf Sportwagens and Passats in Europe for years. VW had an option to break into several segments with little competition, and even tried a little bit at the end of the 2010s, with the AWD Golf Sportwagens and Alltracks. But overall, they abandoned a loyal customer base to make bland, uninspiring, uninteresting crossovers that nobody wants to buy, in an attempt to expand their market share, and I think that, combined with the rising popularity of SUVs, something VW is NOT renowned for, is a major reason for their fall in sales.