Does VW face an uphill struggle?

Some VW managers are seriously concerned. Their dynamic and controversial group chief executive Ferdinand Piech has decreed that the marque should head upmarket.

Why should that be a cause for anxiety? Any responsible steward seeks to enhance his brand’s prestige. And a more expensive car is a better car: better by far on margin. That’s important in today’s car industry. Especially if, like VW, you’ve warned the market of flat profits in the year to come.

If only the way ahead were so simple. Scaling the pinnacle of the market, we find it a far from comfortable place to be. Jaguar couldn’t make it on its own, Rolls-Royce has recently sold out and BMW and Mercedes are doing their level best to move downscale. BMW is considering an entry-level 2 series; Mercedes has already launched its baby A-model. Not to mention what they have been doing in the acquisitions and mergers department, with Rover and Chrysler respectively.

But this argument need not detain us too long. Such is the nature of competition these days that niche brands cannot survive independently. Look at Volvo, knocked down to Ford only the other week. Mercedes and BMW have been guided by a similar logic: they can only retain independence by adding scale to their operations. The fact that they are prestige car makers is no more than fortuitous.

The VW Group, on the other hand, has abundant scale. Leader in the European car market with 18 per cent share, it is indisputably one of the handful of manufacturers which will survive the next decade intact.

Its problems lie in the area of brand credibility. VW’s strategy – and one of the reasons it has arrived at market leadership – has been to husband a number of carefully distinguished marques under one umbrella. The Seat and Skoda brands sit at the mass-market end. Audi, now nudging BMW, and the recently acquired flagship, Bentley, are at the top.

That leaves the mid-to-mass market VW core brand looking rather boxed in. It is best known for the Golf and the Beetle, both of them of compact size. Understandably, VW would like to see its bigger saloon range, the Passat, achieve the same cachet. Already launched is a performance-enhanced Passat V6 Synchro. More sketchily, an eight-cylinder Passat Plus and a limousine loosely based on the luxury Audi A8 platform are in the pipeline. All trailing in the slipstream of the Ferrari-like W12.

This is fine if VW can get away with it. But there are risks. What impact will these new models and the repositioning have on Audi? What’s more, a move upmarket may militate against the value-for-money image VW’s marketers have cultivated over the past few years.

Cover Story, page 26

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