FRANKFURT – There will be a second-generation Phaeton luxury sedan, and the Dresden, Germany, plant where it is assembled has an equally long-term future, says Bernd Pischetsrieder, CEO of Volkswagen AG.

The sedan, VW's foray into the luxury segment, was first introduced in Europe with a short wheelbase and V-6 in 2002, and a larger version, with a V-8 engine, was engineered for its North American debut a year later. (See related story: VW Phaeton's Road to North America)

It has sold a fraction of its forecast on both sides of the ocean.

In the U.S., optimistic original sales forecasts called for 4,000-5,000 units annually of the 15,000-20,000 global sales. VW sold 1,939 Phaetons in the U.S. in 2004. Through August, only 559 sales have been made and fewer than 1,000 will have been delivered in 2005, says Len Hunt, executive vice president-Volkswagen of America Inc. until Oct. 1 when he assumes a new position with Bentley Motors Ltd.

VW Phaeton

And while observers have all but killed the Phaeton from VW's future product lineup, Pischetsrieder says it will not go away.

Its successor, while still years out, will continue the tradition of a high-quality interior in a true driver's car. “That kind of positioning will not change.”

Wolfgang Bernhard, chairman of the VW brand group, also confirms a successor for the Phaeton. It is too early to think about design changes, nor is it a priority given the current challenges facing the brand, he says.

The expectation is future styling needs to be more distinctive.

Bernhard says only that the next-generation Phaeton will be shaped “in a way so that it fits nicely into the product plan.”

Under discussion is whether two versions are necessary, Pischetsrieder tells Ward's. If the lineup is pared to one size fits all, it will be the longer, more powerful North American entry that will continue.

That leaves more room for a vehicle positioned between the Passat and the Phaeton, an idea Pischetsrieder has not abandoned.

Two years ago, the vehicle envisioned to fill this white space was known as C1, the child of an alliance between Audi AG and Maserati SpA that was to yield a vehicle from the Maserati Quattroporte platform. (See related story: Maserati, Audi Join Forces)

The alliance fell apart and the C1 project was scrapped, Pischetsrieder says. (See related story: VW's C1 Not a Sedan)

But the objective, to close the price gap, is alive in a new project known as the CC. Pischetsrieder does not elaborate, except to say the CC, like the C1, will not be a traditional sedan and will not compete with the Audi A6.

A 4-door coupe is an option, he says. Presumably a coupe/convertible also is under consideration.

Hunt says it also has not been decided which comes first, the CC or the next-generation Phaeton.

Meanwhile, slow Phaeton sales are not the fault of the product nor is it a U.S.-market problem, Pischetsrieder says. He lays blame at the feet of VW and its inability to meet the expectations of the new customers the luxury vehicle attracted.

“It is certainly not a product issue, because the customer satisfaction with the Phaeton in the segment in Europe is higher than any competitor,” he says.

Bernhard says customers were asked whether the Phaeton supports the brand or hurts it. They answered that it imbues status on the lineup. When the new Passat was introduced in Europe, “some people said it looks and drives like a mini Phaeton,” Bernhard says.

Hunt says the Phaeton also showcases VW's technical prowess, creating the expectation some of the technology will trickle down into other models.

“The answer is very clear,” Bernhard says. “It supports the brand. However, it's a hell of a job to sell those vehicles in high numbers.”

He notes, however, that the Phaeton sold better in its first year than the Audi A8.

Hunt, who led Audi of America Inc. prior to his VW post, says it took three or four generations for the A8 to come into its own.

In the interim, VW is using some of the excess capacity at the Dresden plant that does final assembly of the Phaeton by adding production of the Bentley Continental GT Flying Spur (or Silver Spur as the European version is known). (See related story: Bentley Fighting to Handle Demand)

While a Bentley executive said the move largely is to fill the pipeline to launch the Flying Spur, Pischetsrieder says it is not temporary – nor would it be worthwhile for only a few months.

With the Crewe, U.K., plant at capacity with demand for the Continental GT, and the addition of the Azure flagship convertible in spring 2006, Dresden is a long-term solution even though it lacks a body or paint shop.

Pischetsrieder says the Dresden plant is not going away any more than the Phaeton is. The plant will continue to finish painted bodies for the Phaeton, as well as receive Flying Spur subassemblies (engines and interiors for left-hand-drive sedans) from Crewe for completion.

He points out the Crewe plant also relies on the arrival of subassemblies. “The overall cost of assembling the car in Dresden matches the costs in Crewe.”

“Today the position is that U.S. and British versions (of the Flying Spur) will be produced in Crewe,” Pischetsrieder says, while copies for Europe and other markets will be produced in Dresden.

apriddle@primediabusiness.com