April 11 (Bloomberg) -- Volkswagen AG has failed to find one true successor to the original Beetle, so it’s trying out several to tackle the market for affordable, basic transport.
Following flops by the VW Fox and Lupo, the German automaker is transforming the Up! city car into a family of entry-level vehicles to grab market share from Fiat SpA and reach its goal of selling 10 million vehicles a year by 2018. Up clones will be sold under Volkswagen’s Skoda and Seat brands and a cut-rate version will be targeted for first-time buyers in markets including China, Brazil and India.
“The Up is a fundamental milestone” for VW to reach its sales target, said Albrecht Denninghoff, an analyst with Silvia Quandt Research in Frankfurt. The city car’s expanded lineup will “really increase the pressure on the competitors in the segments in which they make their money.”
Subcompact sales are rising as buyers seek cars for driving in urban centers and governments push automakers to build vehicles that burn less fuel. Sales of mini cars like the Up and Fiat Panda could rise 25 percent globally to 11.2 million by 2015, according to IHS Automotive.
After moving upscale with models like the 68,300-euro ($89,400) Phaeton sedan and the trendy, 16,950-euro new Beetle, the shift back to basic cars marks a key test for Chief Executive Officer Martin Winterkorn, who ordered the Up’s development after he took charge in 2007 to help turn the Wolfsburg-based company into the world’s biggest automaker.
VW became a global automotive power on the back of the Beetle, the original “people’s car,” which went out of production as basic, inexpensive transportation in 2003 after more than six decades.
Volkswagen has failed to gain traction in this segment, with the 9,850-euro ($12,860) Up marking its third attempt to build a globally successful subcompact.
The broader array of Up-based offerings is geared at lowering per-vehicle costs to compete with the Fiat Panda, Renault SA’s Twingo and the Peugeot 107 from PSA Peugeot Citroen for customers like Wendy Mountford. The 53-year-old English teacher shunned the Fox and Lupo three years ago when she was looking for a cheap, reliable car for her daughter.
The VW models were “just too expensive,” said Mountford, who lives in Zorneding near Munich and previously owned two Golf hatchbacks, a Scirocco coupe and a Passat wagon. The VW models “were very fuel efficient, but you had to have them 10 or 12 years before you got your money back.”
New Small Family
With Volkswagen adding five-door and electric variants in 2013 to what it calls the New Small Family, which already includes the Skoda Citigo and Seat Mii, the Up models will outsell the Panda, Twingo and 107 by the end of that year, according to estimates from IHS Automotive.
VW halted production of the Lupo in 2005 after sales of the vehicle missed targets during its seven-year lifespan. Exports of the Fox, which is still built in Brazil, were squeezed by the appreciation of the real against the dollar.
While the first generation of the car is unlikely to be profitable, according to analyst Denninghoff, it will serve to attract first-time buyers to Volkswagen brands who might then buy more expensive models.
“Our issue is not so much about making the platform profitable, but to use it to increase the potential of the brand and loyalty,” Paul Sevin, Seat’s vice president for sales and marketing, said in an interview at the company’s headquarters in Martorell, Spain.
VW sees the Up winning over more than 100,000 new buyers per year, the brand’s marketing chief, Luca de Meo, said in August.
The Up’s various versions each have a different function. For Seat, the Mii is seen as an “anti-crisis” car aimed at winning market share in Italy, France and Spain, Sevin said.
“We can begin with an entry price in the category, so it’s a very good answer in this time for reconquering customers,” he said. Seat’s 225 million-euro loss in 2011 made it VW’s only unprofitable automotive unit.
The Mii starts at 8,890 euros, undercutting the 9,650 euros Peugeot charges for the most basic 107 and the 9,990 euros Fiat and Renault ask for the Panda and the Twingo. Skoda said it’s breaking away from its focus on male drivers with the 9,450-euro Citigo.
“We’re now targeting here new customers for the brand -- a slightly younger, more female audience,” Skoda sales chief Juergen Stackmann said in an interview in Prague. “Citigo allows us to move into a more emotional market with more emotional customers -- for us it’s a completely new endeavor.”
Volkswagen is also developing a version of the Up geared to the South American market that should arrive in 2013. Editions for India and China are also under consideration, said Ulrich Hackenberg, head of VW brand development.
“The Up definitely has the potential to mobilize broad strata of the global population,” Hackenberg said in an e-mail response to questions. The model line “will be a very important component of our 2018 growth strategy.”
Still, scaling back a car for low-price markets is “an experiment which so far has never worked out,” said Frankfurt-based IHS Automotive analyst Christoph Stuermer. “That is what makes the car in its second life strategically much more important than simply another VW. It is certainly addressing very high volume and very high growth potential much more than in Europe.”
Buoyed by the emerging market editions, Volkswagen is projected to more than double sales of the Up family to 390,900 in 2015 from 181,400 this year, according to IHS. That may not be enough. The carmaker will struggle to make a profit on the car until annual sales exceed 500,000, Denninghoff said.
Ex-VW owner Mountford ended up opting for a Smart ForFour from Daimler AG when she bought a car for her daughter to head to university. The good news for VW is that the car’s no longer on the market. The bad news is that Daimler and Renault are teaming up to bring it back.
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