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VW Sees Passat Picking Up Jetta’s U.S. Success

Volkswagen AG (VOW), set to unveil its new Passat midsize sedan in the U.S. in mid-September, is looking to repeat the unexpected success of the Jetta compact.

VW cut $1,700 off the $17,700 starting price of the new Jetta compact sedan to compete with perennial top-sellers such as Toyota Motor Corp. (7203)’s Corolla. U.S. sales rose 77 percent in the first half of the year. The cheaper offer lured shoppers who then bought sedans with goodies like sunroofs and leather seats. The average sales prices stayed about the same, and the higher deliveries meant more profit.

Jonathan Browning, who runs the American operations, will follow the same strategy when the new Passat midsize sedan goes on sale, betting the brand can again record sales gains without destroying its premium pricing. The automaker is counting on reaching 1 million U.S. sales to make it the world’s largest and most profitable automaker by 2018. Jetta and Passat sedans accounted for almost half of the brand’s U.S. sales last year.

“When you look at how the Jetta has done it would be pretty hard to say you’re not optimistic about how the Passat is going to do,” said Will Trafton, a VW dealer from Rochester, New York, and head of the brand’s U.S. dealer council. “It’s exactly the same playbook.”

Photographer: Mark Elias/Bloomberg

Line inspection workers check a Volkswagen AG 2012 Passat at the company's factory in Chattanooga, Tennessee. Close

Line inspection workers check a Volkswagen AG 2012 Passat at the company's factory in... Read More

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Photographer: Mark Elias/Bloomberg

Line inspection workers check a Volkswagen AG 2012 Passat at the company's factory in Chattanooga, Tennessee.

Browning says the redone Jetta, which came out in September and has a longer wheelbase allowing for more space inside the car and added legroom, is getting twice as many new customers to VW from competing brands as the older model did.

Off Radar

Browning, 52, faces a tall task to almost triple Volkswagen’s sales in the U.S., where the company says it hasn’t earned a profit since 2002. Jetta and Passat are challenging four cars -- Toyota’s Corolla and Camry and Honda Motor Co.’s Civic and Accord -- that all sold in greater number in the market last year than the entire VW brand.

“Right now, Volkswagen is not on anybody’s radar when it comes to midsize cars,” said Jim Hall, principal of 2953 Analytics, a consulting firm in Birmingham, Michigan. Reaching 1 million U.S. sales will require years of “continuous marketing,” he said, and “the inadvertent help of some competitors,” such as Toyota’s recalls in 2009 and 2010 and the earthquake that struck Japan in March.

VW’s goal is to surpass Toyota, which sold 8.42 million vehicles last year, as the world’s largest automaker no later than 2018. VW global sales exceeded 4 million during first six months of the year, the company said this week without revising its full-year forecast of almost 7.6 million vehicle deliveries. General Motors Co. (GM) last year sold 8.39 million cars and trucks.

3.1 Percent

Including Audi, Lamborghini and Bentley, Volkswagen sold 360,179 last year, or 3.1 percent of the U.S. light-vehicle market, according to Autodata Corp., a researcher based in Woodcliff Lake, New Jersey.

To generate such increases -- particularly in high-volume sedan segments -- Volkswagen has decided that it must make bigger cars and charge less for them, as it did with the Jetta and plans to do with the upcoming Passat, which will be priced $8,000 below the previous model.

Early results are promising, Browning said. VW’s U.S. sales of the Jetta sedan rose to 76,498 during the first six months of the year, helping boost the brand’s sales 22 percent in that time period, the company said in a July 1 statement.

“The Jetta is an unqualified success in the market,” Browning said last week in a telephone interview. “The Jetta momentum is tremendous.”

Price ‘Hurdle’

Some U.S. buyers have thought the VW brand was too expensive, Browning said. With a lower starting price, “the hurdle is reduced” and that has been a “key part” of the Jetta’s sales increase, he said.

The lower price gets more people into the showroom to look at the Jetta, said Trafton, the head of the brand’s dealer council.

“We’re seeing a lot of customers for the car that never looked at the old one,” he said in a telephone interview. “The car is more accessible from a pricing perspective.”

While the starting price of the Jetta was lowered, the average transaction price has remained the same compared with the previous model, Browning said.

The average transaction price of the Jetta was $21,488 last month -- almost $1,000 more than the segment’s average, according to Edmunds.com, a website that tracks automotive marketing.

Passat’s Role

The redesigned Passat, which is being built at a new assembly plant in Chattanooga, Tennessee, will be cheaper than the previous version because it is a simpler design and because the U.S. workers will be paid less than German counterparts.

Keeping transaction prices up on the new Passat may be a bigger challenge because the price cut is so much steeper. VW’s ability sell Jetta sedans for the same average price as before “certainly allows them to make more money on the vehicle,” said Rebecca Lindland, an industry analyst from IHS Automotive. “That’s always a positive.”

The Jetta, besides the new pricing strategy, has also benefited from good timing, given the short supply of Honda Civics and other competing models after the March earthquake and tsunami shut some parts plants in Japan.

“Some of it is luck and some of it is genius,” she said.

The Jetta and other new small cars, such as GM’s Chevrolet Cruze, also have been helped this year by gasoline prices that approached $4 a gallon in the U.S., said Jessica Caldwell, an industry analyst with Edmunds.

“Despite the fact the car got, what’d I say, very much panned when people saw the new design, it’s seems, in terms of performance, it’s doing quite well,” she said in a telephone interview.

To contact the reporter on this story: Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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