VW Aiming for Cheaper Golf

June 9, 2008
Like all German automakers, Volkswagen has a serious cost problem. Producing vehicles, like its globally popular Golf, in Wolfsburg is a costly process, thanks to high salaries and incredible benefits. But even when the Golf is assembled in other locations, such as China, the popular model is saddled with designed-in cost penalties that make it increasingly difficult for VW to compete with its U.S., European, and Asian rivals.

As a result, the automaker has embarked on a campaign to strip about $1,600 in costs out of the next-generation model, according to published reports. The sixth-generation Golf will make its formal debut for the 2009 model year. Among other moves, VW has decided to maintain the next version on the same platform used for the current Golf--which is sold in the States under the Rabbit nameplate.

The Golf/Rabbit is critical to Volkswagen's global success. Last year, it produced 763,000 of the cars. And it could become even more important in the United States moving forward, since the German maker has set out ambitious growth targets in a market where it's stalled in recent years. VW plans to roughly double sales, to 800,000 by 2018.

To get there, the company is looking for ways to reign in prices, which tend to run higher than most competitive products, and to deliver potential customers designs and features better targeted to American needs. Sourcing new components from suppliers outside the so-called Euro-zone will help, too. But VW is also planning to both expand imports from its low-cost Mexican assembly line--and build an all-new production plant in the U.S., which will be capable of producing about 300,000 vehicles annually.

While the company intends to keep importing some models from Europe, it is looking for ways to minimize the impact of a weak dollar, probably by exporting American-made vehicles back to Europe.

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