Fahrvergnugen. Volkswagen AG used that made-up word in the late '80s and early '90s advertising to try to describe that mystical wonderfulness of driving a German-engineered car. Unfortunately it was a German car that was more expensive and less reliable than a comparable Japanese model, and probably built in Mexico by ticked-off workers who were itching to go on a really, really long strike.

It didn't work. After a long history of selling more than half a million units in the U.S., VW sales sank below 50,000 in 1993, thanks to big quality problems and a lengthy strike at its Puebla, Mexico, plant. VW seriously considered bailing out of the U.S. entirely.

But sometime after fahrvergnugen, barfignugen and other bon mots, VW became cool. Twenty-somethings fell in love with the Jetta's boxy silhouette and cheap lease payments. Boomers, bored with the overly conservative Toyota Camry and Honda Accord, began swooning over the sleek new Passat. And then the New Beetle arrived.

Last year VW sold 138,000 cars in the U.S., and it plans to sell 180,000 this year, with 20% annual growth for the next few years. Finally, fahrvergnugen has real meaning.

If it were only VW, it might not be a big deal. But sales of every German car - indeed just about every European vehicle except Saab and Range Rover - are strong, if not shooting right through the roof.

Meanwhile sales of most other passenger cars are anemic. Mercedes-Benz sales were up 76% in August and 68% for the year to date, says Ward's Automotive Reports. BMW, Audi, Porsche, Jaguar and Volvo also are going very strong. Total European brands were up 36% while overall light vehicle sales were down in August; they're up 31% for the first half of 1998 while most other sales are flat. Call it Continental cachet, dynamite engineering and marketing or just plain snob appeal, the Europeans appear to be on an unstoppable roll.

It would be easy to attribute these sales gains simply to a strong luxury market or brand new luxury truck products such as Mercedes' ML320 sport/utility vehicle (SUV), but that's not the case. Even Mercedes' aging, entry level C-Class cars are flying out of showrooms faster than ever before, while non-European marques such as the Cadillac Catera need to stoop to special discounts and low lease deals.

To major U.S.-based producers making huge profits on big-volume SUVs and pickup trucks, the loss of a hundred thousand sales here and a hundred thousand there to the Europeans may elicit little more than a yawn.

But their growing success in the U.S. - as well as the rest of the world - while traditional U.S. luxury and near-luxury car brands falter, suggests a disturbing trend. After all the talk of "brand management," two of the U.S. auto industry's most important brands - Cadillac and Lincoln - are becoming irrelevant to an expanding pool of current and future car buyers.

While traditional U.S. brands have dwelt on demographics and meeting the needs of an ever-smaller and increasingly elderly clientele, Europeans use more "psychographics" and have focused on answering the emotional needs of emerging customer groups. The result: The Europeans are introducing boatloads of affordable, dramatically styled cars that push the right psychic buttons at exactly the time the marketplace is demanding them.

"Consumers in 1998 want drama, excess, hyperbole, exaggeration in their products; new cuisine, flamboyant presentations of food, clothing and architecture," says JayC. Houghton, automotive marketing manager at A.T. Kearney Inc. A good example of that drama is the Volkswagen New Beetle and the ellipsoid headlights of the Mercedes E-class.

Meanwhile, Cadillac and Lincoln still are trying to play it safe, marketing conservative designs to younger customers - but bending over backwards to avoid scaring off old loyalists. That has turned into a king-size generation gap that won't easily be breached without major new products and marketing programs. Cadillac's overweight and blandly styled Catera already has fallen far short of the mark, analysts say.

"It's completely a generational phenomenon," says John Wolkonoweicz, an independent consultant who specializes in generational marketing issues. The affluent baby boomers to whom everybody wants to sell cars grew up in the '60s when the "fat cats" they were rebelling against drove Cadillacs. GM hasn't done enough to ditch that negative baggage and reach out in a meaningful way to the emotions of younger buyers, he says.

That's something Mercedes did in the nick of time, Mr. Wolkonoweicz adds. In the early '90s it was being hammered by BMW and Lexus and in very real danger of becoming little more than a maker of stodgy cars for rich old men. But instead of trying to figure out how to get wealthy lawyers to buy its cars, Mercedes overhauled and expanded its product lineup to attract a more diverse, younger, less-affluent customer base. That meant designing smaller, sportier and less expensive vehicles and hiring a new advertising agency to project a hipper, youthful, more attainable image.

But European cachet is far more than just good marketing, emphasizes A.T. Kearney's Mr. Houghton. "The reasons the Germans have been able to become 'mega brands' is they have continued to push the envelope in terms of performance, quality, materials, design and engineering," he says. "The most powerful brands in any given category have the highest level of technical refinement. BMW's mega-brand image is not because of marketing. It's because it's a damn good product."

Here's a rundown of what's happening with the key European brands for the '99 model year and beyond:

Audi

n Reasons for Confidence: Cutting-edge styling; access to Volkswagen's enormous R&D resources; distinctive brand image.

n Areas of Concern: Maintaining brand in VW's all-encompassing platform-sharing strategy; lack of a credible flagship (U.S.).

Outlook: Chic looks and all-wheel drive converge into a smart portfolio for the coming century.

In hardly more than a decade, Audi - largely under the guidance of Volkwagen's dynamic chief, Ferdinand Piech - has transformed a foundering image into a viable franchise and a genuine threat to its prime competitors in Europe and the U.S.: Mercedes-Benz and BMW.

In Europe, the market currently is a battlefield, but Audi is holding its own, despite being part of the VW Group's small loss of market share through July of this year. When launched, the A4 immediately became a serious competitor for BMW's best selling 3-Series, and the A6 is a hit, too.

The big gains, of course, are in the U.S. Stylish new products and more realistic pricing certainly have contributed, but repositioning its Quattro all-wheel-drive system in a market obsessed with 4-wheel-drive SUVs has proved prescient. Audi wisely foresaw a few years back that Quattro should be more widely promoted throughout its product range - and did so, with a scheme to make 4wd a much more attractively priced stand-alone option.

"Quattro is a huge part of Audi and makes it stand out from the other Germans," asserts Ken Moriarty, Audi's director of marketing. "Quattro is the linchpin to the Audi story of technology; it is very, very highly valued by people who buy Audi."

Mr. Moriarty says Audi's recent advertising campaigns have been important, too. "Audi advertising always surprises people. It is never arrogant and never aggressive."

He believes Audi sales are up so strongly because, "Bottom line, they have great cars. The cars are exceeding the expectations of the customers."

The single black mark probably is the A8 flagship, which is selling only with large discounts, despite the technical advance of aluminum-intensive construction that genuinely separates it from its BMW 7-Series and Mercedes S-Class competition.

Coming, though, are even more niche products: the adventuresomely styled TT coupe next year, followed by a roadster version, and an A6 station wagon, the Allroad, with more overt SUV styling cues.

BMW

n Reasons for Confidence: One of the planet's most prized badges; a lock on the performance side of prestige image; entire model range is strongly positioned.

n Areas of Concern: European sales have slipped recently; no real answer to the U.S. SUV boom; reputation for high ownership costs.

Outlook: If you had to be running one car company right now, it would have to be BMW.

What needs to be said? These days, BMW is more often cited by other automakers as a "benchmark" than any other brand. BMW's unique combination of luxury cachet overlaid by German performance is THE winning formula to snare the brand-conscious baby boomers every automaker covets. Name any BMW: It has been somebody's development target.

What's more, nobody gets more out of a model range than BMW; that's why the launch of a new series is so highly anticipated. It's well known the company will create a multitude of models off the original sedan, most of them likely to be very good. So good, in fact, that just after launching the new 3-Series, BMW has added 3,000 to its plant workforce to handle the orders.

The strategy of multiple variants has helped fuel BMW's climb to unprecedented sales heights in the U.S. The company's stated goal is to increase volumes in its chief export market, and it is going about it by exploiting segments vacated or badly served by GM, Ford and Chrysler Corp. and making a value statement versus the Japanese competition.

That's right: value. Not a traditional BMW virtue, but one the company believes is a prime factor in remaining on top in the U.S. Now that its brand image is cemented, BMW is moving to dispel the notion that it is a rich man's car. BMW executives say volumes can increase only if their cars can continue to draw on a larger audience.

Underscoring that strategy is the recently launched, all new 3-Series. The entry 323i sedan starts at $26,400; that's the sort of money buyers are giving these days for 6-cyl. Camrys (BMW executives admit, however, that the average transaction price for the 323I will be something closer to $30,000). Nor is the 323I an entry-level car in the vein of what BMW previously had been delivering.

For the price of 6-cyl. Japanese and American rival, it's got one of the genuine, inline 6-cyl. engines for which BMW is renowned, not the 4-cyl. engines that mark BMWs "for the masses." Critics have charged that 4-cyl. BMWs have watered down the company's performance image, and BMW may indeed soon banish 4-cyl. offerings altogether from the U.S.

Like other BMWs, buying the new Three also includes three years of no-cost scheduled maintenance - again, a move to dissipate a reputation for lofty ownership costs and tempt buyers who might be thinking of a low-maintenance Japanese alternative.

The other volume-lifter for BMW is a renewed emphasis on niches. It started the German Roadster Phenomenon with the highly regarded (if overstyled) Z3, building its own U.S. assembly plant to build these highly prized symbols. For '99, the company will dive headlong into the station wagon business, selling cargo haulers imbued, of course, with the requisite amount of BMW sportiness.

And the following year, BMW will address its one area of weakness - at least in the U.S. market. It will introduce an SUV.

JAGUAR

n Reasons for Confidence: Renewed energy, enhanced development budgets under Ford ownership; brand image remains strong.

n Causes for Concern: Expanding currently thin model range, moving into mid-luxury segments; no trucky U.S.-market product.

Outlook: The link with its storied heritage has been adequately re-established, but will younger buyers get the message?

Everyone knew Jaguar needed serious help. Its products had become ancient at the same time its reputation for poor quality and reliability reached a zenith.

Enter Ford, whose management rightly recognized that Jaguar had much worth salvaging. Ford bought Jag in 1992. After pouring in large amounts of capital, Jaguar turned the corner.

Jaguar, too, desires to increase volumes; Ford wouldn't mind seeing black ink some day. To do that, Jaguar must extend the burgeoning success of the XJ sedan and XK coupe/roadster. The XJs now are worthy alternatives to the premium German machines, thanks to Ford assembly know-how and a sparkling new V-8 engine, the AJ-V8. And both the XJs and the XK8 coupe/convertible made convincing styling links with past Jaguars, always an important brand-enhancement component. Judging from its healthy sales increases, buyers apparently believe Jaguar is a desirable brand once again.

The U.S. market has been good (see chart), and Jaguar has established a solid new foothold in Europe. Its sales on the Continent for the first eight months were up 31%, despite cat-fight competition in its segments and a generally flat market in whole.

With the present apparently under control, Jaguar's focus is on products that will increase volume. That means a new, midpriced sedan, the S-Type, that will be revealed at this month's Birmingham Motor Show.

Mercedes-Benz

n Reasons for Confidence: Legendary brand needs no "management;" down-market moves seem to be working; advertising appeals; niche products are effective.

n Causes for Concern: Capacity shortage means long waiting lists; A-Class must prove itself; some cost cutting is showing up in the products; the merger with Chrysler Corp..

Outlook: Unless the total world economy sours, Mercedes management appears to know what to do.

Forget the endless speculation about what absorbing Chrysler will or won't do for Daimler-Benz AG, Mercedes' parent. If management manages properly, you should never know the difference.

Instead, understand the almost outrageous gains Mercedes has made in the U.S. 1997 was Mercedes' best year ever here; this year, the company blew past last year's sales total after just eight months.

Most of that was borne by the new M-Class SUV, and the M-Class is indeed the ideal symbol for Mercedes' worldwide strategy of expanding into markets this formerly prestige-sedan-only automakers would never have considered.

Mercedes broke all the rules with the M-Class: built a plant right here in the U.S., outsourced heavily to suppliers, made a vehicle first and foremost for a transient-taste U.S. market. The payoff has been a 30% sales increase from the M-Class alone and a need to expand the Alabama M-Class plant to make more. We hear some U.S. customers are being asked to wait six months or more for the privilege of an M-Class purchase.

The equivalent story in Europe centers on the A-Class, the least expensive Mercedes ever, built to compete with everyday economy cars such as Volkwagen's Golf and Opel's Astra. Mercedes had a scary start when the A-Class's dynamic stability came under fire, but the company weathered the fury; now we understand the A-Class waiting lists are growing, too.

Apart from the M-Class and A-Class, Mercedes marches toward more volume with other niche vehicles such as the SLK roadster and the handsome, reasonably priced CLK coupe. Add up the contribution from all of these relatively low-volume products and it amounts to serious increases over Mercedes' traditional U.S. volumes.

Saab

The good news is that Saab sales are up by more than 300% in Japan for the first half of 1998. The bad news is that the sales surge only amounts to 1, 200 cars. Fortunately Saab really is selling very well in significant volumes in Western Europe, up 24% in 1998 thanks to brand new products. But even though Saab's new 9-3 and 9-5 have received fairly positive reviews in the U.S., buyers seem to be gravitating to other European brands instead.

Analysts say Saab became popular in the U.S. for its uniqueness and because it was priced lower and had more value than comparable German cars. Now, analysts say, U.S. consumers view Saabs as having luxury car prices without the luxury brand image. That probably explains why Saab has switched to a new nomenclature for its '99 models and is stressing safety and engineering more than ever.

For the new 9-5, the luxury 9000's replacement, Saab adds a whiplash prevention system, a safety feature designed to reduce front occupant head injuries during rear-end collisions. It works by restricting the head's rearward movement and then damping the impact by "giving" slightly. The totally mechanical system then reverts to its neutral position.

Saab also beefs up side impact protection, with lateral crash forces fed downwards - away from occupants' more susceptible upper body parts - via a structure the automaker calls a "collision deflector."

Two new turbocharged engines are available in the 9-5, an optionally available 3L 24-valve V-6 and an updated 2.3L inline 4-cyl. unit.

Volvo

AB Volvo suffers from some of the same luxury branding issues that are hurting Saab, but its strong - and well-maintained - image of safety and durability has helped it survive increased competition from the Germans. Sales are up 8.5% in August, and 8.7% through the year's first half.

Volvo is smartly expanding its image as a maker of extremely stout and durable station wagons into all-wheel-drive utility type vehicles like the new V70 wagon. It's also expanding into utterly new areas (for Volvo) such as sexy coupes and convertibles.

Emphasizing its move into sporty new niches, Volvo, like Saab, is using new alpha-numeric designations and adds the S80 sedan to its lineup. It joins the already redubbed 850s, replaced for 1998; the C70 coupe and convertible, S70 sedan (in front- and all-wheel-drive variants) and V70 wagon. And to make things interesting, Volvo engineers do something with the S80 that hasn't been attempted in over 30 years: they turned the engines 90 degrees.