Volkswagen enters U.S. luxury market with W8 Passat

April 25, 2002 BLOOMBERG NEWS reported that Volkswagen AG is using a $37,900 version of the Passat sedan to enter the U.S. luxury market at the same time it's adding less expensive models to keep younger buyers, the German automaker's top U.S. executive said.

The W8 Passat, with Volkswagen's first 8-cylinder engine, will sell 5,000 models a year, said Frank McGuire, vice president in charge of Volkswagen in the U.S. The W8 is part of a lineup expansion that may take Volkswagen to 600,000 cars and trucks in the U.S. within five years, up from 355,931 last year, he said. There is also a $38,700 station wagon.

"For Volkswagen to make the move up is not a bad idea," said Wes Brown, an analyst at Thousand Oaks, California-based Nextrend, which studies auto-market patterns. "Their buyers are going to have more money at a younger age than buyers in the past. They just can't lose the entry-level buyer."

Volkswagen reorganized worldwide divisions in November to help differentiate models. Audi, Seat and sports-car maker Lamborghini make up what the Wolfsburg, Germany-based automaker calls the "sporty" unit, while Volkswagen, Skoda and Bentley comprise the "classic" division.

"This is a car that says to the general public that we can build a luxury car," McGuire said, who expects the model to compete with Bayerische Motoren Werke AG's 3-Series and DaimlerChrysler AG's Mercedes C-Class cars, which don't have 8-cylinder engines. The W8 will be followed by Volkswagen's luxury Phaeton sedan in 2003 to compete with the Mercedes S-Class.

McGuire said he's not worried that Volkswagen may steal sales from Audi, the company's luxury unit, because only 4 percent of their buyers cross-shop the brands. W8 sales start this week, McGuire said while displaying the vehicle today in Half Moon Bay, California.

Volkswagen shares fell 1.60 euros to 56.15 euros in German trading. The shares have risen 7 percent this year.

The automaker is adding less expensive trim levels for each of its U.S. models this year to help keep the entry-level buyers, McGuire said. For example, the Jetta, which ranges in price this year from $17,400 to $27,375, rose to 30 different trim levels in 2002 from 11 last year, according to Edmunds.com.

The strategy to add luxury features to vehicles is already having an effect. The automaker's average sticker price has been rising at a higher pace than the rest of the market, according to Jesse Toprak, new car pricing manager at Edmunds.com, which tracks vehicle prices. Volkswagen prices rose about 2 percent while prices industrywide fell about a half percent, he said.

Luxury vehicles are traditionally identified as those costing more than $30,000.

Volkswagen also said it will offer General Motors Corp.'s OnStar to customers who want services starting next year such as remote locking and unlocking of doors, navigation and hands-free cellular telephone calling.