It may be one of the most enduring and unwanted myths in the auto industry. Try as it might, Volkswagen continues to struggle against the stereotype that it sells cars in only the lowest reaches of the market.
Yet in a matter of months, the namesake brand of Volkswagen AG has rolled out both the new Phaeton, a large luxury sedan, as well as the Touareg, a high-line sport-utility vehicle meant to take on the likes of the BMW X5 and Land Rover’s Range Rover. And even more up-market products are under development, company officials are surprisingly willing to suggest, countering industry norms of never talking about future product.
But VW doesn’t intend to build its future solely around the high-line market. It intends to take aim at a whole range of new niches, a strategy in keeping with basic industry trends. Within the next few years, that means a blitz of new products including up-market sedans, additional SUVs and crossover vehicles.
Full line supplier
"We are positioning ourselves as full-range suppliers," emphasizes Juergen Osmer, director of sales and marketing for VW’s new Luxury Class operations.
It’s been a long time since the automaker’s line-up was limited to the original Beetle which, for years, sold for under $2000. As far back as 1989, VW had introduced what was then the $15,000 Passat. The new Touareg will command as much as 68,000 Euros when it goes on sale in Germany later this year, and should reach a similar level in U.S. dollars when it reaches the States in the second quarter of 2003. The Phaeton will go even higher up the price scale.
But VW is not only moving up-market. Perhaps more significant is the fact that it is rapidly fleshing out what was, until recently, a very limited lineup of products. It will be adding a range of truck-like vehicles, including the reborn Microbus and other, Touareg-based SUVs, along with more conventional passenger cars and hard-to-define crossovers.
That reflects a basic reality of the automotive industry: the rapid fragmentation of the global market as automakers struggle to give consumers vehicles that more precisely meet their needs and desires. The precise number of product segments varies from manufacturer to manufacturer. But by VW’s count, it went from nine to 33 between 1985 and 2001. By 2005, the automaker expects to see the number grow again, to 40 worldwide.
So, insists Osmer, VW’s expansion strategy is "uncompromisingly logical."
A big shift in thinking
The challenge, acknowledges the automaker’s new CEO, Bernd Pischetsrieder, is to compete in the broadest number of segments that make sound business sense. For VW, it requires the company to not only rethink its product line-up but also to shift its development and manufacturing processes in order to increase flexibility and reduce costs.
Volkswagen was one of the first manufacturers to make effective use of the so-called "platform strategy." Its Audi A4 and VW Golf, as well as models sold by the down-market Skoda and Seat divisions, all shared the same basic chassis, as well as a significant number of parts and components. That resulted in huge economies of scale, directly improving the company’s bottom line.
Unfortunately, the way VW AG approached platform development, such vehicles were relatively limited in how much they could be differentiated in terms of critical physical dimensions.
The Touareg is one of the first vehicles developed under what Pischetsrieder calls a "modular" strategy. Instead of using a single underbody pan, mix-and-match pieces can permit variations in terms of length, width and height. This will make it possible for Audi to build a longer three-row version of the Touareg, possibly to be named "Magellan," in honor of a popular concept car.
And Touareg "is a good basis for further models" in the VW brand, according to one of its designers, Peter Schreyer.
VW clearly sees the need to flesh out its offerings between the Passat and Phaeton. So, expect the flagship nameplate to also add a midsize "C" segment sedan, in the size range of the Audi A6, possibly along with a tall wagon, perhaps in line with the upcoming Chrysler Pacifica. Not all these vehicles will be coming to the U.S., of course, but with the company’s new CEO very clearly focused on opportunities in America, the States will have a growing influence on the design and engineering of all future Volkswagen models.
More from less?
The flexibility of the modular system will allow more models off less platforms, according to VW’s chairman. But even the most cash-rich companies have to pick-and-choose their battlegrounds, and the automaker won’t enter absolutely every segment, Pischetsrieder cautions. The company has ruled out a full-sized pickup truck, and though it once made a popular pickup, a new version "is not hot on my agenda."
Just because you build a new product does not automatically mean customers will queue up, Pischetsrieder believes. In the increasingly competitive automotive market, quality and value are givens. Technology plays a key role, depending on segments. A major factor in the growth of the various Volkswagen brands has been a focus on interior design. The Touareg, numerous industry critics noted at its debut in Paris this month, has a decidedly more upscale feel to it than the Porsche Cayenne, which was developed jointly with VW’s new ute.
"I have a vision that we, as a group want to become leaders in design," says Pischetsrieder.
His company has some ambitious goals for growing both volume and profits over the coming years. Considering what it’s up against, it won’t be easy, but VW is betting it can do so by moving into newer and high segments, and finding ways to further reduce costs. Perhaps the biggest challenge it faces will be to convince consumers to accept the new definition of what can wear the Volkswagen badge.