Turnaround and Return to Profitablility of Volkswagen

Turnaround and Return to Profitablility of Volkswagen

AUBURN HILLS -- After being on death's door in the early '90s, Volkswagen is back in peak form with U.S. sales breaking records month after month.

And the German-based automaker is promising more of the same going forward. It is hoping to boost sales with the introduction of turbocharged versions of its high-volume Jetta and Golf models.

"The question now is how high is up," says David Huyett, VW of America's marketing director.

Last year, VW sales topped 315,000, up 44 percent from 1998. The surge continues into this year, with sales up 40 percent in January and February.

Huyett conservatively says sales will exceed 350,000 units in 2000.

That may not sound like much. After all both General Motors Corp. and Ford Motor Co. sold more vehicles than that in February alone. But its heady territory for a German-based company that six years ago was selling less than 50,000 vehicles in the United States.

Industry analysts say that VW is succeeding because it has fresh products that appeal to young buyers -- the median age of purchases is 36 -- and it has a well-focused U.S. market strategy.

"VW is the epitome of a well executed brand strategy," says David Andrea, chief economist at CSM Worldwide in Northville.

VW is not resting on its laurels. Rather it is trying to attract new buyers by not only spicing up its new model range but also launching a factory supported certified used-car program.

The initiative will assist dealers in offering used VWs with two-year, 24,000-mile warranties and two-year roadside assistance. Qualifying vehicles are up to five years old, receive a 112-point inspection and will be eligible for new car finance rates.

"We want to help younger buyers who can't afford to get into the brand," says Frank Maguire, vice-president of sales. "We're aiming at the $9,000 to $15,000 buyer who is currently looking at Asian brands. This becomes the entry level purchase for buyers who want a VW."

From VW's perspective the used car program will help support new vehicle sales and maximize the resale values of its pre-owned fleet. Research shows that a majority of usedcar buyers prefer to purchase a vehicle from a new car dealer and are willing to pay a premium to do so.

With new cars, the focus is on expanding the reach of the top selling Jetta sedan and its hatchback cousin, the Golf.

Having racked up 130,000 sales last year, the Jetta is already performing strongly, qualifying as the best selling European model in North America.

But VW thinks it can do even better by adding its 150-hp, 1.8 liter turbocharged four-cylinder (as found in the Passat and Audi A4 sedans) to the three existing engine options available in the Jetta and Golf. The pair already offer a 115-hp 2.0 litre four-cylinder, 174-hp VR6 and 90-hp 1.9 litre turbodiesel four-cylinder.

"The new engine solidifies our brand's premium image and reaches a new customer base," says Stefan Krebsfanger, VW product strategy manager. "It will appeal to a new group of driving enthusiasts."

The new engine will come as a stand-alone $1,550 option on GLS Jetta and Golf models.

"We expect the GLS trim level to account for the lion's share of sales and 25 percent of Jetta buyers will opt for the 1.8 T," adds Krebsfanger.

Prices will come in at $17,900 for the Golf GLS and $19,200 for the Jetta GLS. For 2000 the three-door Golf GTI GLS will come as standard with the 1.8 T engine in place of the 2.0 litre and cost $19,225.

Analysts say that VW captured the attention of buyers with it's well-focused marketing message. It has used its distinctive products, like the new Beetle, to build