VW Faces Tough Transitional Year Ahead

DETROIT – Volkswagen AG may sputter during 2004 and fail to match 2003 sales, the auto maker admits.

Key new product launches, including the Golf, could hamper efforts to grow volumes in the coming year.

“The objective is, overall, to launch some brand new products this year and, providing we will get (the launches) technically under control, we have no doubt we will be successful,” VW Chairman Bernd Pischetsrieder tells Ward’s on the sidelines of the North American International Auto Show here.

“It is a transitional year before we (complete the launch of all of our new products) in all the markets in 2005.”

Improving profitability, not volume growth, is the key target for VW in 2004. “They (sales) might increase (on a global basis), but that is not the key issue,” he says. “The key issue is we have to improve profitability.”

While Pischetsrieder expects the U.S. market to be kind to VW during the year, Europe remains uncertain. “At the end of the day, we might not see a real market recovery in Europe this year,” he says.

In terms of the U.S. market, Pischetsrieder says VW must concentrate its efforts on growing its margins, not volume. The company will continue to resist joining the incentive battle in the U.S. market, which helped prop up 2003 industry sales while whittling away at profits.

“We didn’t contribute (in terms of incentives in the market) to the extent of the others in discounting in the U.S.,” he says. “We were about one-third of what GM (General Motors Corp.) and Ford (Motor Co.) spent, and we didn’t lose market share in the passenger-car segment. To continue in that direction is absolutely important.”

Pischetsrieder admits the launch of VW’s new Golf, which went into production in fourth-quarter 2003, has not gone smoothly. “We are, in terms of volume, 12 days behind (schedule). I think 12 days is nothing (to be worried about),” he says.

Another crucial product, the VW Phaeton luxury sedan, has gotten off to a rocky start in Europe, with sales falling far below initial projections.

Pischetsrieder expects Phaeton sales to get back on track when the vehicle finishes its launch in the U.S. market, which should be completed within the next three to four months.

He says VW originally projected the U.S. market to account for upwards of 50% of Phaeton’s total sales, which would make up for the less-than-stellar results posted for the sedan thus far.

Initial U.S. Phaeton sales are “confirming” VW’s expectations for demand, Pischetsrieder says, although he declines to provide specific numbers.

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