Sales Magnet: Will New Beetle also build VW brand sales?

ATLANTA - Having struggled to survive in the U.S. just five years ago, Volkswagen AG today has something to smile about.

It is an optimism that goes deeper than Beetle, although all of the buzz surrounding the new vehicle certainly has executives at the German automaker acting a tad more triumphant these days. Even Ferdinand Piech, VW's sometimes-stoic chairman, seems a bit looser.

Not since 1970 - when VW sold 569,696 vehicles in the U.S., 405,615 of them Beetles - has the company enjoyed a sales run like it did last year. VW moved 136,093 Volkswagens, while Audi posted sales of 34,160, its best since 1985's 74,061 units.

Now Mr. Piech says he wants to see the VW Group's worldwide sales grow by 5% to 15% annually. Before his scheduled retirement in less than five years, he says the goal for VW is to hit 5 million in annual global sales - 500,000 of those sales in North America.

Ambitious? You bet. But with Mr. Piech at the wheel and executives such as Jens Neumann, head of VW's North American operations, riding shotgun, it is clear that this is a different kind of VW, one more likely to stun customers than stand them up.

The VW chairman laid out his ambitious plans during the recent media preview of the Beetle here. In his usual confident style, Mr. Piech says the company isn't satisfied with being No. 1 in China, Latin America and in Europe; it also must be a contender in North America.

The new Beetle certainly will play a role in that plan, but so, too, will the company's new Passat - which already has a five-month waiting list in Germany - as well as the redesigned Golf and the upcoming new Jetta. Audi and its string of hot-selling vehicles also will figure prominently.

The bigger issue for the VW Group will be whether or not it will be able to supply its 596 U.S. dealers with enough product. Already production-constrained at its factories around the world, VW will need additional capacity to meet demand, Mr. Piech says.

Relief could come in the form of a new factory, which likely would be built somewhere in North America. Mr. Piech says production capacity would be in the 200,000 to 300,000-unit range, divided between VW and Audi. Puebla, Mexico, home of the U.S.-market Golfs and Jettas and the New Beetle, is at the top of the short-list of potential sites. Suppliers say VW's supervisory board already has approved $71 million for the new plant. To keep costs down, VW apparently plans to contract body shop work to Magna International Inc. Mr. Piech says he will decide on a new plant before 2000.

Meanwhile, VW will focus efforts on trimming costs and boosting productivity in existing plants, Mr. Neumann says.

"We are trying to find more capacity. But the thing with the capacity is once you have it, you cannot utilize it; and when you could utilize it, you don't have it. That is the experience over the history of the car industry," Mr. Neumann says. "Then you sit with idle capacity, and then journalists like to ask 'How can you have done this? Now your productivity has gone down.'"

Product availability is likely the prime barrier to VW's U.S. annual growth forecasts of 20% to 30% through 2000.

"The Passat should do well in the U.S. once the availability is better," he says. "We expect to sell more than 30,000 Passats in the U.S. That is where the volume increase will come from. Golf is not really the car that is attractive in the U.S."

VW growth also could come from either a sport/utility or a minivan, two holes in the company's U.S. market lineup. Mr. Neumann says talks with Porsche AG about jointly building an SUV are still ongoing. "This is still under study," he says. "I can't tell you how far we have progressed. Let yourself be surprised."

VW will begin importing about 4,000 of its Eurovans, including about 2,000 camper versions done by Winnebago. The feeling is that if people can't get a Beetle, maybe they'll take a look at the modern version of VW's famous microvan.

The idea of bringing a less-expensive car to the U.S., say in the range of $12,000, has been discarded because the German automaker has its sights set on matching Mercedes-Benz.

"We don't want to be judged as an entry-level company because we have a full range of passenger cars," Mr. Neumann says. "If you take a look at the Passat, it is really a substantial offer. It made a success in Europe and we are convinced it will do it in the States. So, we would rather move up-market and take the Golf as the entry level of Volkswagen."

Audi will continue as the company's luxury sports division, Mr. Neumann says, which should alleviate any fears that the brand's halo might be diminished should it be successful in taking VW up to the level of Mercedes.

"We are quite comfortable that there will not be very much substitution or cannibalization," says Mr. Neumann.

VW, he says, is still on track to reduce its number of platforms to just four by 2002.

"You can get different driving characteristics out of one of the same platforms by doing all kinds of things," he explains. "So you get a specific Audi driving experience as opposed to a Volkswagen driving experience. If you do that, then you don't face a problem. Putting different hats on the same platform and making everything feel alike is not going to happen."

Platform reductions, however, won't impact VW's offerings. Mr. Piech says that within the next two years the VW Group will have 51 different models around the world, and he promises that five to 10 of those vehicles will be "very emotional."