Monday, November 14, 2005

Volkswagen to Pull the Phaeton from the US Market in 2006

Text from AutoWeek.
Volkswagen AG is admitting defeat with the Phaeton. VW plans to pull the slow-selling luxury car from the U.S. market next summer.

The Phaeton is losing money in the United States. "It is not a viable business case anymore," says Hans-Gerd Bode, a VW spokesman at the company's global headquarters in Wolfsburg, Germany.
The decision to pull the plug was made by Wolfgang Bernhard, head of the VW brand worldwide, and Adrian Hallmark, the new executive vice president of Volkswagen of America Inc.

The executives decided Volkswagen will focus on being a volume player in the U.S. market instead of trying to move up-market, Bode says.

"Bernhard and Hallmark said, 'We are a volume producer, and let's go in this direction, beginning with the U.S. market, where we are losing a lot of money,' " Bode says.

Slumping sales

The Phaeton's U.S. sales tumbled to 686 in the first 10 months of 2005 from 1,433 in the year-ago period. That's a 52.1 percent drop.

VW prices the Phaeton at $68,655 for a V-8 model, including a $1,300 gas-guzzler charge. The 12-cylinder version starts at $100,255, including a $3,000 gas guzzler charge.

By contrast, the most expensive four-door VW Passat sedan starts at $32,515 for a 3.6-liter VR6 model.

VW plans to announce the Phaeton decision to dealers today, Nov. 14. Wolfsburg expects Phaeton sales to end in the U.S. market next July or August.

The company will not send the 2007 Phaeton here.

VW will continue to provide customer support to Phaeton owners, Bode says.

VW's U.S. market will focus on core vehicles, including the Passat, Jetta, Golf and Touareg, Bode says, along with new models such as the Eos convertible that is due early next year.

The company's U.S. dealers will get a car above the Passat as part of a product offensive that Bernhard has promised for 2008 and beyond.

Since VW launched the Phaeton in the U.S. market in 2003, the car has not approached its initial sales target of 5,000 a year. This year, the Phaeton does not appear to be on track to hit its lowered U.S. sales target of 1,000.

VWoA offered $10,000 in dealer cash last year on 2004 models.

Bode says it was probably a mistake for VW to launch the Touareg and the Phaeton together. Marketing wasn't sufficient to position both vehicles strategically, he says.

VWoA's marketing also has been inconsistent, Bode says: "In the last year, we didn't have a good marketing effort in the U.S. Today we do this, and tomorrow we do that."

Bode says VWoA's continued losses also affected the decision to yank the Phaeton. VW expected to turn around its fortunes in the United States this year with redesigned versions of the Jetta and Passat and a freshened New Beetle.

This month, though, Wolfsburg announced this year's losses at VWoA are expected to top last year's loss of $1.07 billion.

Chris Curran, a Volkswagen dealer in Stratford, Conn., says "it's no surprise" VW is dropping the Phaeton.

"As the volumes got smaller," says Curran, "they decided they didn't have enough funds to support stronger incentive programs."

Curran says the Phaeton represented too big a jump for traditional VW buyers to make. At the same time, he says, luxury buyers did not gravitate to the car.

Says Curran: "People in that high-price range are buying prestige and image, and want the logo to represent that."

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