VW Takes Aim at Toyota to Turn U.S. Profit With Jetta

VW to Reduce U.S. Price, Boost Size of Revamped Jetta
Volkswagen will revamp the Jetta compact car to boost sales by 2012. Photographer: Armando Arorizo/Bloomberg

Volkswagen AG plans to cut the U.S. price and increase the size of the Jetta compact car, its best-selling model in the country, as the automaker aims to make its U.S. operations profitable by 2013.

The revamped Jetta will be about 3.5 inches longer and about $1,700 less than the current version when U.S. sales start in October, the Wolfsburg, Germany-based company said yesterday in a statement. A hybrid version will sell in two years.

Volkswagen, Europe’s largest automaker, is shifting more production to North America to help trim costs and compete with small-car leaders Toyota Motor Corp. and Honda Motor Co., Stefan Jacoby, chief executive officer of VW’s U.S. unit, said yesterday in an interview. The company is aiming to almost double sales in the market by 2012, to 400,000 units for its namesake brand, compared with 213,454 vehicles last year.

“Model by model, our lineup will be competitively priced so that we will be able to compete in the American market,” Jacoby said yesterday at a press briefing to introduce the car in New York.

Moving more production to North America from Europe provides Volkswagen with a hedge against currency fluctuations and shaves costs, Jacoby said. He restated the company’s goal for North American output to rise to 75 percent of sales in the region by 2013 from about 60 percent last year.

Profitable in U.S.

Volkswagen will be completely independent of the euro- dollar exchange rate by 2012 or 2013, and the U.S. business will be profitable by then, Jacoby said. The German company, which reported a profit of 960 million euros ($1.18 billion) last year, doesn’t break out results for the U.S., and Jacoby declined to give specifics for how much the business lost in the market last year.

Volkswagen plans to sell the 2011 Jetta for about $16,000, down from the current base of $17,735. That would bring the model closer to the starting prices of Toyota’s Corolla and Honda’s Civic, now $15,450 and $15,455, respectively, according to the companies’ websites.

“They’re going after big-volume products,” Jeff Schuster, executive director of global forecasting at market-research firm J.D. Power & Associates in Troy, Michigan, said in a telephone interview.

Hybrid Version

The hybrid Jetta will come to the U.S. in 2012, Toscan Bennett, vice president for product marketing, said in an interview. VW hasn’t chosen a battery supplier yet, he said.

Volkswagen reported U.S. sales of 46,173 Jetta sedans and wagons in the five months through May, a 27 percent increase from a year earlier. Sales rose 17 percent to 118,625 for the Corolla and 9.9 percent to 107,127 for the Civic in the period.

If Volkswagen “can improve styling with more competitive pricing, that combination should provide some lift to sales,” Schuster said. He called the redesigned Jetta “more refined from a styling standpoint, like it’s grown up a bit.”

Volkswagen is scheduled to open a plant next year in Chattanooga, Tennessee, that will build a new midsize sedan the company expects to name by early next year. The Jetta is produced in the Puebla, Mexico, plant, which has capacity to make 450,000 units after an expansion to the plant that has been ongoing since July 2009, spokeswoman Jill Bratina said yesterday in an e-mail.

‘Aggressive’ Growth Strategy

Volkswagen “is engaged in an aggressive long-term growth strategy” in the U.S. and wants to boost deliveries to 1 million vehicles by 2018, David Geanacopoulos, executive vice president of VW’s North American unit, said today at a briefing in Berlin.

“We have a long way to go, but we’re off to a good start,” Geanacopoulos said. “We’ve improved product quality. We’re continuing to gain market share.”

Volkswagen’s American depositary receipts rose 41 cents, or 2.4 percent, to $17.45 at 3:55 p.m. New York time in over-the-counter trading. That would be the highest closing price since May 13.

Volkswagen is considering bringing the Polo subcompact, which is smaller than the Jetta, to the U.S., Jacoby said yesterday. The company has sold 225,200 Polo cars worldwide in through the first five months of the year, up 28 percent, according to a June 11 news release.

J.D. Power is “fairly bullish” on Volkswagen’s U.S. sales prospects, while setting its own estimate short of the German carmaker’s 2012 goal, Schuster said.

“We’re forecasting sales in the 350,000 to 375,000 range,” he said. “If they hit a home run with these products, their target is within range.”

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