VW: More “UP!” for Tokyo, L.A.

While the automaker still needs “to do some homework,” it is beginning to look like little more than a matter of time before Volkswagen officials approve a long-considered U.S. assembly plant.

 

One of the key questions left to resolve is whether the automaker will use that facility to produce a product specifically for the American market, agreed several senior officials, or one or more high-volume models that could be exported around the world, in part, to take advantage of the steadily weakening U.S. dollar.

 

The proposed plant, along with the recently-announced decision to move Volkswagen of America’s headquarters to suburban Washington, D.C. , underscores the dramatic changes underfoot at the huge German manufacturer. Revitalizing VW’s struggling U.S. operations will be critical for the automaker’s plans to boost its worldwide sales from six million to eight million cars, trucks, and crossovers by 2010, stressed Volkswagen AG Chairman Martin Winterkorn.

 

“We need a culture of new ideas,” said Winterkorn, during a conversation at the Frankfurt Motor Show. And that, added VW’s U.S. chief executive, Stefan Jacoby, is why he authorized the move from Detroit to D.C. But Jacoby’s boss cautioned that “The move to Washington is just one piece in the puzzle.”

 

There’s no question the “people’s car” company needs to figure out that puzzle. U.S. sales have plunged, this decade, even as VW’s global numbers have steadily climbed. For years, the automaker struggled to sell American motorists products primarily geared to the U.S. market. That’s relatively easy when the dollar and Euro are in sync, but with exchange rates now painfully lopsided – and no short-term turnaround anticipated – this has become a formula for failure. And certainly for big losses, VWoA running up a reported $2 billion in red ink during the last two years alone.

 

Going forward, the American subsidiary will attempt to focus more on its customers’ needs and demands and with Winterkorn’s blessing, that should mean product more closely in line with U.S. needs. In some cases, that could result in what industry insiders like to call “de-contenting.” There may less of the performance, comfort, and even some safety features that European buyers are willing to pay a premium for.

 

The challenge will be to maintain what Jacoby calls the “VW-ness” of its products. “I don’t want a Camry,” he insisted, suggesting that while Toyota ’s mid-size mainstay may be rock solid when it comes to quality, it doesn’t quite have the fun-to-drive fundamentals that VW buyers have long relished.

 

Expect the German automaker’s products to continue to command a premium, but where they’re often 20 percent or more above middle-of-the-road entries, today, that could drop to a five-percent bump as VW brings production costs more in line.

 

Should all fall into place, Winterkorn is shooting for U.S. sales to triple over the next decade, to at least one million.

 

On a global basis, VW expects to drive up volumes by a full third, to an anticipated eight million, in 2010. To get there, it is rolling out an array of new products through its various brands, which include not only Volkswagen, but Audi, Š koda, and Seat – the latter two not sold in the States – and the premium marques, Bentley, Lamborghini, and Bugatti.

 

Among the upcoming models that will wear the VW brand badge: the Tiguan, a compact SUV/crossover premiering in Frankfurt, a reborn Scirocco (which may not come to the U.S. ), a new minivan developed in a joint venture with Chrysler, and a coupe version of the Passat.

 

For the moment, Winterkorn was not ready to give full confirmation of the UP! minicar, a concept version of which has created quite a stir at the Frankfurt show. But when pressed, the executive acknowledged it will be likely to reach production in a couple years. A second concept version, sharing the New Small Family platform, will debut in Tokyo, next month, while a third variant is on tap for November’s auto show in Los Angeles. Eventually, added Winterkorn, there could even be a fourth UP! model, and versions sold through other VWAG brands, such as Seat or Skoda.

 

Winterkorn, meanwhile, confirmed that VW is working on developing several new pickups, but Adrian Hallmark, second in command in the U.S. , quickly cautioned that there are no plans to bring a truck to the States.

 

“With four other projects in the pipeline (for the U.S. ),” he stressed, “it’s not a top priority,” especially not with the pickup segment suffering the impact of rising fuel prices.

 

Going forward, VWoA will focus on four core product segments:

        *compact sedans, such as the Jetta;

        *compact SUVs, like the Tiguan;

        *mid-size sedans, like the Passat; and

        *mid-size SUVs, such as the Touareg.

 

That’s not to say the automaker will ignore other segments. It will, for one thing, add the new, Chrysler-derived minivan. And like the corporate parent, it may add niche models, such as the Passat Coupe and even a larger sedan that would bridge the gap between Passat and the Phaeton.

 

That controversial, high-line luxury sedan – which competes against the BMW 7-Series and Mercedes’ S-Class – has been dropped from the U.S. line-up, though it continues on sale in Europe, China, and other parts of the world.

 

There has been plenty of confusion about Phaeton’s future, even among VW insiders. Winterkorn’s predecessor, Bernd Pischetsrieder, had planned to drop the four-door, but now, says the new CEO, “Phaeton will have a successor.” Promisingly, that news actually led to an increase of nearly 40 percent in the car’s European sales.

 

Exactly what the next model will look like isn’t clear, though the automaker recognizes there’s a step-up gap it may need to fill between Passat and Phaeton. Also unclear, said Hallmark, is whether the luxury car will make a return to the U.S. While some markets are willing to accept the idea of an up-market Volkswagen, the brand has a very different image in the States – and a different buyer. Indeed, added Hallmark, when Phaeton launched, four years ago, only two percent of VW’s U.S. buyer base could afford the car.

 

“It’s always going to be a stretch,” he said, and before authorizing Phaeton’s U.S. revival, VWoA officials will need to decide if it fits into the future vision they have for the brand, starting with their move to Virginia.

 

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