With a lot of people bitchin' about how VW is snuffin' something trying to shoot for the stars, this may evoke a 'told you so'. I just hope the pricing comes down on the vehicles, and not the degree of design, engineering, or quality built into them.
VW drops highest-price position
By Wim Oude Weernink
Automotive News Europe / November 29, 2004
High-volume Volkswagens such as the Polo, Golf, and Passat will no longer be the highest-priced models in their segments.
Volkswagen is shifting pricing strategies on its mainstream cars to make them more competitive against rivals from Asia and France. VW's policy of taking the premium-priced position was initiated in the 1990s by then CEO Ferdinand Piëch.
For example, when VW introduces its Brazilian-built Fox in Europe in the spring, the car will be bigger than and priced below the Lupo minicar it replaces. It is part of VW's bid to double its European sales in the minicar segment.
The Lupo starts at E10,150 in Germany but extras usually increase the car's price to about E12,000.
"VW brand won't position its cars at the high end of each segment any more," said a VW brand source in Wolfsburg.
Another source said that the next Passat upper-medium model that will debut in March at the Geneva auto show will have a more competitive entry-level version equipped with steel wheels.
"It won't get alloy wheels as standard, as initially planned," said the source. "That will save a few hundred euros from the start."
Industry analysts welcome the new strategy. But they also see risks, especially when many basic designs are shared by VW, Skoda, Seat and even Audi.
"It is unavoidable that with 50 models for Seat, Skoda and Volkswagen, that there will be some overlap between them," said Maria Bissinger, auto industry director at Standard & Poor's in Frankfurt.
No 'super Passats'
Adam Jonas, an analyst with Morgan Stanley in London, said that the move make sense following the recent agreement on a seven-year labor contract between VW and workers in Germany.
"They need to find to keep plant utilization high, and that does not work with super Passats and Phaetons," Jonas said.
VW brand's premium-price positioning has sacrificed some market share to French, Japanese and Korean brands, he said.
"Volkswagen used to have pricing power. But with increased competition from rival brands, which have improved perceived quality," VW's price strategy is under pressure, Jonas said. "Because of that, Volkswagen may not be able to benefit from increased volume."
VW will have trouble being price-competitive on the Golf. Many parts and systems cost more in the Golf than in competitor models. For example, the Golf's multi-link rear suspension costs more to manufacture than the suspensions in the Opel Astra or Ford Focus.
"The Golf's exotic rear suspension alone costs E200 to E300 more compared with other lower-medium models," a rival carmaker CEO said.
VW could boost sales and cut Golf per-unit production costs by offering more variants that share modules, such as the Touran minivan and future Bora/Jetta sedan.
In 1992, the Golf and Golf station wagon alone sold 957,000 units globally. Last year, that number was 647,067 units.
At this week's Bologna auto show, the Golf Plus, a high-roof version of the car, will make its debut.
"It will be positioned between Golf and Touran," said VW brand marketing boss Ludger Fretzen.
The four-door Bora sedan (called the Jetta in the US) will debut at the Los Angeles auto show in January. The Bora is produced at VW's plant in Puebla, Mexico. It comes to Europe in the autumn of 2005.
Golf remains a best seller
The Golf Variant, the model's station wagon version, is due in 2006. It will fill a stable sub-segment that contributes 10 percent of total Golf sales, Fretzen said.
"When all versions of Golf are on the market, the total volume of Golf-derived models will be higher than in the past," he said.
In September, the Golf hatchback reclaimed its position as Europe's best-selling car with 415,020 units sold in the first nine months, against 398,585 Peugeot 206s. Opel/Vauxhall sold 267,216 Astras in the same period.
A revised Polo small-segment car and the new entry-level Fox model will debut at the Leipzig trade fair in April 2005.
VW has not yet priced the face-lifted Polo.
But brand sales boss Georg Flandorfer said VW is considering an inexpensive Polo version.
"We have to accept that some of our customers want to spend less money on their cars," Flandorfer said. "A high-volume producer such as VW has to take this into account."
The Fox will succeed the slow-selling and expensive Lupo, which sold only 43,000 units in Europe last year.
"VW had to stop [the] bleeding on the high-tech Lupo minicar," said Christoph Stürmer, an analyst with Global Insight in Frankfurt.
With an overall length of 3800mm, Fox is bigger than original 1975 Golf. It is also 280mm longer and 80mm taller than Lupo. Fretzen said he expects annual European Fox sales to exceed 100,000 units.
But VW does not plan to offer a car smaller than Fox in Europe.
Fretzen said: "Unlike our competitors, we do not need a smaller car than Fox."
– Wolfgang Eschment contributed
