BARCELONA, Spain – Volkswagen of America Inc., struggling to regain momentum and reposition its quirky status in the world’s most lucrative market, plans an aggressive ploy to reduce costs and strengthen both its volume and niche models.

And despite recent management upheavals at parent Volkswagen AG, greater communication and global cooperation will be key to the auto maker’s salvation in North America, a top executive says at the introduction of the refreshed ’08 Touareg midsize cross/utility vehicle here.

“Our success (in North America) will come not from draconian (cost) cuts, but from intelligent operation,” Adrian Hallmark, executive vice-president, says, noting volume growth is at the heart of improving profitability.

In the near-term, Hallmark expects VWA to return to profitability by the end of 2008, with U.S. sales reaching between 400,000-500,000 units annually by 2012, a sharp rise over last year’s tally of less than 250,000 deliveries.

Included in that figure will be four or five volume models, such as the Jetta and Rabbit, along with four or five European-based niche products, such as the R32 performance hatchback, he says.

Also aiding the sales improvement will be multiple entries into new segments, including the upcoming Tiguan small CUV, a Passatt-based 4-door coupe and a yet-to-be-named minivan developed with and built by Chrysler Group.

Outlining the challenge on two fronts, Hallmark says a foundation of efficient operation first must be in place for the new models to succeed, noting efforts to date have reduced vehicle defects approximately fourfold in the past three years, with the Rabbit and Touareg faring even better.

But Hallmark sees unrealized potential in several key areas, primarily in better design, engineering and purchasing cooperation with Wolfsburg. Also on the table are greater local parts sourcing and manufacturing, particularly in Mexico, along with considerable investments in the VW dealer network, which long has been cited as a critical weak point for the auto maker.

Once these improvements are established, Hallmark says, only then can VW restructure its model ranges for the greatest benefit.

At the core of that re-jiggering is the volume-leading Jetta, which is far more popular in the U.S. than in Europe. This runs counter to – and conflicts with – the strategy for the Golf, which serves as the proverbial “cash cow” of profitability for Volkswagen AG in Europe.

“We can’t be successful in the U.S. without a proper Jetta and (overall) sedan strategy,” Hallmark says, adding VWs, as a whole, can command only a 5% price premium (compared with the current 20%) over volume players such as Toyota Motor Corp.

To this end, the next-generation Jetta and Passat will benefit from the auto maker’s more efficient operations, allowing them to be priced more closely to similar models from competitors, without losing the virtues that make them VWs, Hallmark says.

Offering few specifics, he sketches a possible scenario in which the future VW lineup in the U.S. is anchored by a Jetta priced between $15,000-$19,000, with a new “volume model” Passat and an all-new small car (possibly a derivative of the Polo in Europe) priced slightly above and below that mark, respectively.

Where the Rabbit/Golf fits in still is undecided, Hallmark says, noting European strategies will continue to differ from those for the U.S. and emerging markets, such as Russia, China and India.

In these markets, similar tastes in vehicles will allow for greater economies of scale and lower price points. However, minor changes, such as less-extravagant interiors for China, will allow VW to continue to offer quality vehicles that better match the financial needs of regional customers.

“I like the Apple (computer) model; not just the machine, but the interface and how it works with the user,” Hallmark says of his vision of VW and its similarities with the iconic computer maker.

“We don’t need to be huge or cheap, just great.”

msutton@wardsauto.com