VW’s $1.85 Million Bugatti Escapes Cuts as Successor Eyed

VW's Bugatti Veyron Automobile
A logo sits on the front grill of a Volkswagen Bugatti Veyron automobile. VW is pumping cash into its most exclusive marque even as it plans cutbacks for its more terrestrial brands. Photographer: Jason Alden/Bloomberg

Volkswagen AG wants to make sure this year isn’t the last chance to get a new Bugatti.

There are fewer than 20 left of the VW unit’s Veyron, a limited production line of 450 Bugatti cars that start at 1.46 million euros ($1.85 million). Now VW is testing at least three different concepts for a successor, according two people familiar with the Wolfsburg, Germany-based carmaker’s plans, who asked not to be identified before an official announcement.

VW is pumping cash into its most exclusive marque even as it plans cutbacks for its more terrestrial brands. The Veyron set industry records not just for speed, but also for losing money, according to estimates from Max Warburton, a Singapore-based analyst for Sanford Bernstein Ltd. The cost of developing the Veyron, introduced in 2005, means VW may lose 4.6 million euros per vehicle over its life cycle, Warburton said.

“I have long struggled to understand the logic of expending this much time and effort on a Bugatti-branded product,” he said in an e-mail. “I totally get the point of building the world’s fastest car -- it pushes the engineering boundaries, motivates the company and can be an image booster. But the image-boosting part is lost when it carries a brand that 95 percent of people don’t know is part of VW.”

The new Bugatti will vie for the world’s most affluent customers with the likes of Italy’s Pagani Automobili SpA, McLaren Automotive Ltd.’s street cars and the U.S.-built Hennessey Venom GT. VW will display a special-edition Veyron at the Paris Motor Show starting this week.

Stronger Engine

The next generation will be lighter and, if tests are successful, could feature an engine as much as 25 percent stronger than the 1,200-horsepower motor of the current model’s most powerful version, according to the people briefed on the plans. At least one of VW’s concepts includes an electric motor to boost power and lower emissions, the people said.

Manuela Hoehne, a spokeswoman for Bugatti, said the company will give an outlook on a new model next year. She declined to comment in detail on the concept plans. VW design chief Walter de Silva told BBC’s TopGear the new model would be unveiled at the end of next year or early 2016 and will be “art.”

Meanwhile, thousands of workers rallied last week at the group’s largest factory and expressed concern that the company is planning to cut costs for its mass-market brands. The assembly lines in industrial Wolfsburg are 500 kilometers (311 miles) north of where Veyrons are custom built in the picturesque Alsace town of Molsheim, France. The German city created to produce the original Beetle is where Volkswagen makes the Golf hatchback, the Tiguan small SUV and the Touran minivan, bread-and-butter vehicles for the middle class.

Inevitable Cutbacks

VW Chief Executive Officer Martin Winterkorn caused a stir in Wolfsburg in July when he told his top brass that cutbacks are inevitable to make the company’s namesake passenger-car brand more profitable. The unit’s margins were 2.1 percent in the first half, and Winterkorn wants it to reach 6 percent. He set a target of boosting earnings by 5 billion euros by 2017.

The Audi luxury unit said two weeks later it would also need to keep an eye on costs. It didn’t set a specific target.

VW’s premium-car brands, including Audi and Porsche, contributed about two-thirds of the group’s first-half operating profit of 6.19 billion euros. That’s one reason the company cites for investing in Bugatti: the ultra-high-end car shows people who might want to buy its other luxury brands what VW is capable of doing.

Formula 1

“Premium starts in the high-end segment,” Audi Chief Financial Officer Axel Strotbek said at an event in Frankfurt last month. “You have to invest for this.”

Profits from Volkswagen, Audi and Porsche subsidize Bugatti, purchased in 1998 along with the Lamborghini and Bentley nameplates under the tenure of then-CEO and current chairman Ferdinand Piech. VW doesn’t release financial details for Bugatti, and executives have said the costs are moderate compared to what their peers spend on prestige projects like Formula 1 racing.

“Bugatti boosts the technical knowledge for other VW group brands, so it’s difficult to measure this ultra-luxury marque purely in financial terms,” Roman Mathyssek, a Munich-based analyst at consulting company Strategy Engineers GmbH, said by phone.

The new Bugatti underscores the growing complexity VW has to master within its stable of 12 brands, which apart from mass-market and premium cars also includes Scania’s 40-ton trucks and Ducati motorbikes. The company says the wide range on display tonight at a presentation before the Paris car show gives it an edge over rivals as costs can be shared between different brands.

Caviar Tray

With the Bugatti, VW has layered luxury onto luxury, selling an “Ettore Bugatti” Legend Veyron, named after the brand’s founder, that can clock 62 miles per hour in 2.6 seconds and reach a top speed more than four times that. Its previous 1.65 million-euro L’Or Blanc edition included a built-in caviar tray from Berlin-based KPM, a 251-year-old porcelain maker that traces its roots back to King Frederick the Great of Prussia.

Details like that reflect how a Bugatti, unlike a Golf, a Porsche or even a $178,000 Bentley, doesn’t really compete with other cars. It vies with yachts or London Mayfair apartments instead. Global supercar sales will probably remain stable at about 2,700 vehicles per year through 2020, as manufacturers seek to restrict production to maintain exclusivity, according to IHS Automotive.

“The clientele between Bentley and Bugatti is remarkably different,” Wolfgang Duerheimer, who returned to his post as Bentley CEO and president of Bugatti in June after 2 years, told reporters in July. “The Bentley customer on average owns 8 cars. The average Bugatti customer has about 84 cars, 3 jets and one yacht.”

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