Remember when Volkswagen was best known for cuddly icons like the classic Beetle, the Microbus, and, of course, the Thing? Say goodbye to your old definitions and start stretching your mind around an entirely new set of VW values and products.
As we assembled around a large oak conference table, quietly waiting for various Volkswagen AG Board members to take their seats, newly appointed (April 2002) Chairman of the Board Dr. Bernd Pischetsrieder leaned back in his chair and produced a large cigar. We were in Germany to look at two of the newest additions to the Volkswagen family--family members that at first glance seemed distant relations: the Touareg (pronounced "tour-egg") sport/utility and Phaeton (say "fae-uh-ton") luxury sedan. Like the proud father of hardworking offspring, Dr. Pischetsrieder puffed and asked, "So, what do you think?" And for the next hour, a new Volkswagen strategy was unveiled.
The company's overall targets are ambitious: 500,000 Volkswagens to be sold in the U.S. by 2007 and 100,000 Audi sales by 2004. Both represent a more-than-10-percent increase. Herr Doktor was the first to say it wasn't going to be easy. "With this long-term strategy, we'll avoid the flashy big-bang product and set our sights on those segments where we don't have coverage." Seems refreshingly straightforward. He went on to say the key to VW's success would be found in offering choices for its buyers and becoming a full-line automaker.
Under the previous chairmanship of Dr. Ferdinand Piech, Volkswagen AG underwent significant change. With tremendous, often tyrannic drive, energy, and creativity, Dr. Piech set out to change the way people made, bought, and thought about Volkswagens all over the world. Just 10 short years ago, as sales slumped, many were predicting the death of VW. Even five years ago, when VW began promoting a $25,000 car (the Passat) in the U.S., naysayers preached, "It won't sell: Volkswagen is about inexpensive transportation." Buyers didn't agree, and now VW is on target to sell more than 100,000 Passats this year, with an average transaction price hovering around $28,000--impressive for a platform entering its sixth year of production. If you ask VW execs, they'll tell you there wasn't much risk in that decision because they were just listening to their customers. The company now says the same thing about its newest high-end offerings: Risk is minimal because buyers are asking for VWs where the brand has never been before, meaning higher-end luxury and sport/utility.
In response, VW is expanding into the luxury segment with three new offerings: the Passat W8 sedan, the S-Class-size Phaeton luxury flagship, and the Touareg SUV. All three will be new entries for VW into the still-expanding--still lucrative--luxury segments, each with its own impressive driving characteristics. Although product development for these vehicles began before his watch, Dr. Pischetsrieder is bent on ensuring these new products not only meet the quality standards for their respective categories, but also make a profit, in one way or another, and in short order. The company is targeting Touareg sales of 17,000 units in its first six months. The Phaeton, however, is another story.
First six-month-sales targets are more modest at 1500 units, ramping up to about 7000 for the first full year of production. At those numbers, the Phaeton will break even, and, maybe more important (VW hopes), become the brand leader that shatters the old conceptions of what VW used to be. Although 7000 cars may not sound like much (as a gauge, Mercedes-Benz and BMW are both on target to sell more than 20,000 S-Class and 7 Series sedans), VW has amortized some of the costs for the Phaeton into R&D for the next Audi A8, as well as the new Bentley ultra-luxury sedan currently in the works. Even the next Passat and Jetta will benefit from technology developed for this largest and most-expensive-ever VW. Plans are to break even on the first-generation Phaeton, establishing the company as a player in this market segment, then start making solid profits on the platform with generation two, as sales numbers compete more closely with M-B and BMW.
Where does Audi fit into all of this? Dr. Pischetsrieder was clear: "VW and Audi will be quite separate. We've made them two distinct divisions. Audi will be more sporty, emotional, and have more future technology, while Volkswagen will stay classical, tied to offering premium value. We need to make sure there is very little overlap." That remains to be seen. With a starting price somewhere around $65,000, the Phaeton is right on top of an '02 Audi A8. Of course, when the new A8 comes out (late 2003), we're guessing this issue will be less problematic.
Offering new vehicles in new segments, however, is only part of the company's strategy. VW is changing manufacturing methods, assembly, and even the factory-to-customer delivery process.
A key strategy designed to make Volkswagen a more nimble automaker centers on modular chassis arrangements, meaning the search for platforms to create other variations will give way to a "plug-in" system. For example, if the new T5 chassis (on which the Touareg sport/ute is based) could be formed into three separate pieces--rear, middle, and front--then, theoretically, one could plug in a longer center module and create a longer- wheelbase SUV (with a third-row seat, maybe) that could possibly go to Audi and be outfitted with all sorts of high-tech gadgetry. Complexity notwithstanding, the cost savings are obvious, and the two brands can remain distinct within a relatively similar market segment.
Volkswagen's Autostadt--an interesting combination of car museum and amusement park--looks like it will soon become the fourth-largest tourist destination in the country (in only its second year of existence), with shows, displays, and exhibits for all ages. The Wolfsburg, Germany, campus is home to the largest automotive plant in the world and to the Autostadt, which also is where anyone who orders a VW can pick up their car for delivery--and make a day or weekend of it with free passes to the various pavilions: Audi, Lamborghini, Skoda, Bentley, Bugatti, and more. Think of it as a loosely defined EPCOT Center for cars. There are discussions on whether this type of vehicle-delivery system and/or automotive attraction could work in the U.S. It's interesting, but don't hold your breath.
Based on the success of its Autostadt and the unique ordering/manufacturing/ delivery system, VW is looking to offer the Phaeton customer a little bit more. The Dresden manufacturing plant allows prospective buyers to enter and be guided through the highly individualized ordering process where they can watch Phaetons being assembled (see sidebar) in a clean, well-lit, wood-floored, glass-walled hall. But the building does more than just assemble luxury sedans. This new type of design is part interactive museum, part (extremely quiet) assembly plant, and part high-end dealership. The combination is like nothing else offered by a major manufacturer. And, from VW's point of view, that's the point.
What does this sea of evolution and revolution mean to VW? Certainly the definition of what a carmaker can be to its customers is changing considerably, and Volkswagen seems to be pushing those frontiers, but the questions still remain: Can enough good-quality high-value products come from VW to increase its growth in the marketplace and will people buy them? At first glance, it seems well positioned for next year and a few after that.
For '03, expect the W-8 in the Passat, the V-6 and V-8 Touareg, the V-8 and W-12 Phaeton, and the New Beetle Cabriolet. After that, look for the Microbus (off the Touareg T5 platform), then possibly the 230-hp V-6 Golf R32. Next up should be the Magellan, badged a VW at last year's North American International Auto Show in Detroit--but will it be produced as an Audi?
Following an after-dinner cigar, Pischetsrieder was, once again, clear about his intentions: "We need to look at all the segments. Where we have high market share, we need to strengthen. Where we have low market share, we need to fill." Filling the luxury SUV and sedan segments is first on the priority list, with more to follow. Should be interesting to watch.
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