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VW to Spend $7 Billion to Revive U.S. Growth With New SUV

The Volkswagen AG Logo Sits on an Automobile in Chattanooga
Volkswagen AG stuck to its goal to increase sales of VW and Audi vehicles to 1 million cars and SUVs in the U.S. by 2018, equivalent to 76 percent more than last year’s 565,800. Photographer: Mark Elias/Bloomberg

Volkswagen AG plans to invest more than $7 billion over the next five years in North America to revive its push to grab a bigger share of the U.S. car market.

As part of the spending, Europe’s largest carmaker will introduce a mid-sized sport-utility vehicle designed specifically for North America in 2016, the Wolfsburg, Germany-based company said in a statement today. Volkswagen will also start producing the Golf hatchback tomorrow at its factory in Puebla, Mexico, to supply U.S. customers.

The German manufacturer stuck to its goal to increase sales of VW and Audi vehicles to 1 million cars and SUVs in the U.S. by 2018, equivalent to 76 percent more than last year’s 565,800. Volkswagen has struggled to gain traction in the country. Demand for its namesake brand fell 6.9 percent to 407,700 autos last year on declining demand for the U.S. version of the Passat. Audi’s sales rose 13 percent to 158,100.

“We are taking up the challenge -- with confidence, total commitment and the necessary staying power,” Chief Executive Officer Martin Winterkorn said in the statement.

VW, the world’s third-biggest auto manufacturer, reported record deliveries in 2013, boosted by rising demand in China, where it outsold General Motors Co. for the first time in nine years. Becoming a mainstream carmaker in the U.S. is critical for Volkswagen to achieve its goal of beating GM and Toyota Motor Corp. to take the global sales lead by 2018.

Shares Rise

Volkswagen’s shares rose 0.3 percent to 202.60 euros at the close of trading today in Frankfurt. The stock has risen 15 percent over the past 12 months, valuing the company at 92.4 billion euros ($126 billion).

VW’s new mid-sized SUV is a key part of gaining ground in the U.S. The segment’s share of the American market widened to 30.9 percent from 29.7 percent a year earlier, according to Autodata Corp., an automotive research company. VW’s SUV offerings in the country are currently limited to the compact Tiguan and the $43,995 mid-sized Touareg, which costs 11 percent more than the premium Lexus RX from Toyota.

VW displayed a prototype of an SUV, dubbed the Crossblue, a year ago at the Detroit auto show, positioning the vehicle between its two existing models in the segment to compete with Ford Motor Co.’s Explorer and Toyota’s Highlander.

VW favors its factory in Chattanooga, Tennessee, over its plant in Puebla, Mexico, to build the new SUV for North American customers, two people familiar with the matter said. VW didn’t specify the model’s production location today.

Management Switch

Unlike Volkswagen’s luxury Audi and Porsche nameplates, the mass-market VW brand failed to grow in the U.S. last year, as the push from the Passat, which was introduced in 2011, ran out of steam. Globally, the company’s sales rose to a record of more than 9.7 million vehicles.

VW named Michael Horn in December to become head of the manufacturer’s U.S. business, replacing Jonathan Browning in the post after a little more than three years.

“We want many more American drivers to feel at home with our group brands and are working to achieve that with 100 percent commitment and plenty of passion,” Winterkorn said at an event yesterday ahead of this year’s Detroit auto show.

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