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AUBURN HILLS -- After being on death's door in the early ' 90 s, Volkswagen is back in peak form with U. S. sales breaking records month after month. And the German-based automaker is promising more of the same going forward. It is hoping to boost sales with the introduction of turbocharged versions of its high-volume Jetta and Golf models. "The question now is how high is up, " says David Huyett, VW of America's marketing director. Last year, VW sales topped 315, 000, up 44 percent from 1998.
The surge continues into this year, with sales up 40 percent in January and February. Huyett conservatively says sales will exceed 350, 000 units in 2000. That may not sound like much. After all both General Motors Corp. and Ford Motor Co. sold more vehicles than that in February alone.
But its heady territory for a German-based company that six years ago was selling less than 50, 000 vehicles in the United States. Industry analysts say that VW is succeeding because it has fresh products that appeal to young buyers -- the median age of purchases is 36 -- and it has a well-focused U. S. market strategy. "VW is the epitome of a well executed brand strategy, " says David Andrea, chief economist at CSM Worldwide in Northville. VW is not resting on its laurels. Rather it is trying to attract new buyers by not only spicing up its new model range but also launching a factory supported certified used-car program.
The initiative will assist dealers in offering used VWs with two-year, 24, 000 -mile warranties and two-year roadside assistance. Qualifying vehicles are up to five years old, receive a 112 -point inspection and will be eligible for new car finance rates. "We want to help younger buyers who can't afford to get into the brand, " says Frank Maguire, vice-president of sales. "We " re aiming at the $ 9, 000 to $ 15, 000 buyer who is currently looking at Asian brands. This becomes the entry level purchase for buyers who want a VW. " From VW's perspective the used car program will help support new vehicle sales and maximize the resale values of its pre-owned fleet. Research shows that a majority of used car buyers prefer to purchase a vehicle from a new car dealer and are willing to pay a premium to do so.
With new cars, the focus is on expanding the reach of the top selling Jetta sedan and its hatchback cousin, the Golf. Having racked up 130, 000 sales last year, the Jetta is already performing strongly, qualifying as the best selling European model in North America. But VW thinks it can do even better by adding its 150 -hp, 1. 8 liter turbocharged four-cylinder (as found in the Passat and Audi A 4 sedans) to the three existing engine options available in the Jetta and Golf. The pair already offer a 115 -hp 2. 0 litre four-cylinder, 174 -hp VR 6 and 90 -hp 1. 9 litre turbo diesel four-cylinder. "The new engine solidifies our brand's premium image and reaches a new customer base, " says Stefan Krebsfanger, VW product strategy manager. "It will appeal to a new group of driving enthusiasts. " The new engine will come as a stand-alone $ 1, 550 option on GLS Jetta and Golf models. "We expect the GLS trim level to account for the lion's share of sales and 25 percent of Jetta buyers will opt for the 1. 8 T, " adds Krebsfanger.
Prices will come in at $ 17, 900 for the Golf GLS and $ 19, 200 for the Jetta GLS. For 2000 the three-door Golf GTI GLS will come as standard with the 1. 8 T engine in place of the 2. 0 litre and cost $ 19, 225. Analysts say that VW captured the attention of buyers with it's well-focused marketing message. It has used its distinctive products, like the new Beetle, to build a youthful image that has help draw new buyers to other models. "The company has a very consistent message throughout all its advertising, market positioning and products, " Andrea said. California-based analyst Chris Cedergren of Next rend believes that VW's success is due in large part to its understanding of the image-conscious Generation X and Generation Y buyers. "VW has done a good job of creating vehicles that are considered 'cool' by these buyer groups.
It's because cars like the Jetta have a unique style and have soul, something that's lacking in other lower priced cars. " Cedergren says VW has struck a chord with younger, trend conscious buyers not just in California, which is VW's best market, but throughout the United States. Though VW is on top of its game now, Andrea says there are some potential pitfalls for the company. "The risk is that they might repeat their mistake when they were at their last peak in the 1970 s, " he said. "Then they were intoxicated by their own success and tried to move too far upmarket in terms of pricing. They need to stay focused and perhaps widen the product range, with a sport utility or enter the light truck arena. " VW shakes up its brands Europe's biggest caretaker, Volkswagen, has outlined plans to split its car operations into two separate entities. VW will carve up its brands into two distinct product groups, one combining the "sporty" Audi, Seat and Lamborghini models and the other comprising the "classic" VW, Skoda, Bentley and Bugatti models. The statement, which followed a meeting of the group's supervisory board, also outlined future investments. The company said it would invest 31 bn euros ($ 27. 2 bn; 19. 3 bn) between 2002 and 2006, two thirds of which would be spent on expanding and updating models.
Analysts said this level is 1 bn euros less than VW's previous investment plans, but is still well above the industry average. Management shake-up Under the new structure, the heads of the two main brand groups will be responsible for global operations of each broader product group, but individual brands will retain their own character. The shake-up follows Volkswagen's announcement in September that Bernd Pischetsrieder would become chief executive, replacing long-serving Ferdinand Piece. Although Mr Pischetsrieder does not officially take over until April, he has already started to play an increasingly active role as a member of the board.
The change of management was always expected to spark a series of reforms at the company. And the idea of shaking up VW's diverse portfolio of brands has been widely touted. Analysts expect Mr Pischetsrieder to build Audi into a strong sport brand, while trying to give all brands a clearer identity so they no longer compete against each other. But eliminating model overlap will be difficult and one bank warned in a research note that the strategic changes will take a long time to bear fruit.
Pledged transparency The board also approved a management shuffle that sees Martin Winter korn replacing Franz-Josef Paefgen as head of Audi. Mr Paefgen will move to head the Bentley and Rolls-Royce unit, while Andreas Schleef has been named as the new chief of Seat. The group also pledged to improve transparency in the reporting of its results in order to become more investor-friendly. Shares in VW rose 3. 2 % to close at 52. 7 euros on the Frankfurt stock exchange as investors warmed to the new strategy. Sputtering Profits for Europe's Carmakers Despite hot sales, the Continent's auto industry is hurting At PSA Peugeot Citron's Mulhouse factory in eastern France, 14, 000 workers rotate in three shifts churning out Peugeot 307 compacts and 206 hatchbacks and convertibles. The assembly lines roll 22 hours a day to fill a three-week backlog of orders for the cars.
Europe's economy may be in a funk, but consumers continue to snap up new cars. Industry wide, European auto makers' revenues rose 10 % last year, to a record $ 360 billion. But it's one thing to move the metal and another to turn a profit. Europeans may be rushing out to buy the latest in spiffy compacts, sleek sedans, and family vans, but they want a deal before they put up the cash. The result is a flood of red ink -- and an ominous feeling in Europe's beleaguered auto circles that the pain is only just starting. "We " re looking at a profitless boom scenario, " says Gaetan Toulemonde, a Deutsche Bank analyst.
Prompting this bout of auto-related angst is the arrival of 2001 results. It's not fun reading. General Motors Corp. 's (GM) German subsidiary, Adam Opel, ran up a $ 594 million operating loss for the year. At France's Renault, operating profit fell by more than two-thirds, to $ 140 million, while Italy's Fiat Auto is expected to report an operating loss of more than $ 400 million on Feb. 28. The Japanese and Koreans are losing money, too.
And Ford of Europe, after a strenuous restructuring, is barely profitable. To Detroit executives, this all sounds too familiar. Ford (F), GM, and DaimlerChrysler (DCX) have been propping up sales in the U. S. through profit-destroying discounts. Now the Europeans, who had shied from discounting before, are trying the same tactics, with similar results.
Dealers are offering incentives even on brand-new models, such as the $ 12, 600 Fiat Stilo compact launched last October. In Britain, Ford is offering 0 % financing on models like the Mondeo. Analysts estimate European carmakers' operating profits shrank more than 10 % last year. "They have to buy those sales, " says Games Rhys, professor of motor industry economics at Cardiff University in Wales. And keep buying. Unit car sales in Europe are expected to slip as much as 5 % in 2002, tracking a decline in consumer confidence that began a year ago as Europe struggles through something that's not quite a recession but sure isn't robust growth. As a result, analysts are chalking down their 2002 estimates as well.
Volkswagen's operating profit is expected to fall by 10 % or more this year, as it discounts to drive sales. To steer some traffic into his showroom, Oliver Gloeckler, who heads the Autohaus Gloeckler VW dealership in Frankfurt, is now offering enticing package deals that include once-pricey options such as power steering, air conditioning, and electric windows. "These packages are cheaper than the extra equipment was in the past, " he says, noting that they knock around $ 1, 000 off the price of a new Golf IV, which starts at a none-too-pricey $ 13, 100. Adding to the squeeze, export markets are shrinking -- particularly the U. S. , where Germany's BMW and VW have racked up profits in recent years. Overall U. S.
vehicle sales are expected to drop 10 % in 2002, on the heels of an incentives-fueled boom. DaimlerChrysler, the European manufacturer with the greatest U. S. exposure, reported a $ 589 million net loss for 2001 on Feb. 6. It also issued a profit warning, saying it would miss its operating profit target of $ 5 billion for 2002 because of deteriorating market conditions. Compounding the industry's woes, the European Union wants to promote competition by weakening manufacturers' control over their dealer networks.
New regulations, expected to take effect in October, 2003, would still allow auto makers to pick their dealers. But those dealers would be free to sell multiple brands, anywhere in Europe. Politicians worry that such mega dealers could muscle in on the small fry and drive them out of business through lower pricing. Auto makers wonder why the regulators are sticking it to them. Car prices in Europe have fallen 7 % in real terms since 1996, according to PSA Peugeot C...
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