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U.S. Critical to VW’s Plans For Global Domination

New plant, new Beetle, new sedan could help VW topple Toyota.

by on Oct.08, 2009

Volkswagen was built on the back of the Beetle.  A "new" Beetle, due out in a couple years, will play a critical factor, officials say, in reviving U.S. sales and gaining global domination.

VW was built on the Beetle. A "new" Bug, due in a couple years, will be critical in reviving U.S. sales and gaining global domination.Volkswagen is about to come full circle.

Few cars, anywhere in the auto industry, have been more important than the original Beetle, which was the foundation upon which Volkswagen built its worldwide empire.  While the current incarnation of the little car is no more than an afterthought for the brand, on a global scale, it remains an icon for American motorists.

So, VW expects the next-generation Beetle to not only play a critical role in rebuilding its position in the U.S. market, but helping set it up for global domination.  Increasingly successful despite – or perhaps because of – the global automotive downturn, VW officials acknowledge they’re aiming to knock down the current automotive sales king-of-the-hill, Toyota.

Your Automotive New Source!

Your Automotive "New" Source!

“The Beetle successor will be a halo car that sells in large numbers,” Stefan Jacoby, CEO of Volkswagen of America, or VWoA, told TheDetroitBureau.com, during an interview in Germany, earlier today.

The development of the successor model is already well under way, with the next-generation Beetle due to market in about two years.  VW has kept a tight veil over the program, though reports in the well-connected German media suggest that the vehicle will be a markedly different offering than the current Beetle, and will be based off an entirely new platform to be shared by a larger family of vehicles.

The challenge will be to retain what Volkswagen Group design director Walter de Silva calls “the heritage of the brand,” while not falling into the trap that hampered sales of the so-called “New” Beetle.  The current model captured the egg-shaped essence of the original, but sacrificed some of its functionality and never developed much more than a niche appeal.

The next Beetle, whether marketed as a 2012 or ’13 model will reach market during a critical period for Volkswagen and its U.S. subsidiary.  Three decades ago, VWoA was the first foreign maker to set up a “transplant” assembly line in the U.S., but after some early success, the operation ran into an array of problems and was shuttered, just as Japanese makers like Honda and Toyota began shifting production to their own American assembly plants.

Long reluctant to return, VW is now readying a new factory in Chatanooga, Tennessee, which it hopes will be a critical lynchpin in the aggressive growth plans laid out by Jacoby since his arrival in the States.  His primary goal is to boost sales of the Volkswagen brand to 800,000 by 2018 – more than double current volumes.  (The maker’s Audi brand, meanwhile, is targeting volumes of around 110,000.)

The factory will build, among other models, an all-new midsize sedan that VW hopes to use to challenge the segment’s American sales leader, the Toyota Camry.  One critical advantage is that the facility will largely take lopsided exchange rates out of the equation.  With the weak dollar, German imports have an immediate disadvantage.

“Overall, we have a cost gap of between $3,000 and $4,000 with the (current VW midsize offering, the) Passat,” Jacoby tells TheDetroitBureau.com.  “We don’t need to close the gap completely, but to get it close and get into the sweet spot is one of our goals.”

Not everyone is convinced VW can achieve its sales goals, though analyst Joe Phillippi, of AutoTrends consulting, believes the maker has a much better opportunity with an American plant than without one.

What’s clear is that the German maker no longer believes it can move forward without matching the success it has had in Europe – never mind China and other new markets – without fixing its problems in the States, where it was once the dominant import marque.

“The American market is crucial for us and Volkswagen is ready to make a difference in the market,” declares Dr. Joachim Heizmann, the board member for VWAG overseeing production.

Of course, even a new plant, an updated Beetle and a Camry-fighter don’t guarantee a turnaround in the U.S.  The maker saw sales bubble, during the ‘90s, only to collapse, early in the new millennium. Quality problems and a weak dealer network, as well as the stiff price premium, were the primary culprits.

Even before the opening of the new plant, which will help the pricing issue, VW has worked aggressively to deal with quality.  While it still hasn’t caught up with the industry leaders, the German maker has shown significant improvements, Jacoby points out.  And some key new models, like the curvaceous, coupe-like CC sedan, topped their segments, according to the latest J.D. Power and Associates Initial Quality Survey.

The U.S. chief executive acknowledges that perception tends to lag quality gains, however, and may take time to convince skeptical consumers.  But by offering a new, free maintenance program, he notes that brand loyalty has been gaining ground.  From a low of 29%, just a couple years ago, industry data show it is up to 40%, claims Jacoby, adding that his target is closer to 50%, around the average for top-tier brands in the U.S.

Getting anywhere near the American sales goal will only add momentum to VW’s global march – and the sooner the better, says Christian Klingler, the parent company’s board member overseeing sales and marketing.

With the company’s nine different brands – soon to become 10, as it absorbs Porsche after a difficult takeover battle – VW has become the dominant player in Europe, and a significant force in most other markets, notably including China, which surged past the States to become the biggest car market in the world, earlier this year.  While global auto sales may be in a deep funk, VW has shot ahead, gaining 1.8 points of share, worldwide, and is approaching the 12% mark.

“By 2018, we have a clear goal to become number one in the world,” confides Klingler, adding that while Toyota is currently ahead on a global scale, “it’s not unreachable” for Volkswagen to surpass the Japanese giant well before the end of the decade.

It doesn’t hurt that Toyota is suddenly running into a spate of problems, particularly in the States. And if VW can finally overcome its own issues in what has long been the largest global market, it very well could become the new worldwide king-of-the-hill.

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