Volkswagen to Develop New Low-Cost Car in Brazil

SAO PAULO, Brazil October 16, 2003; The AP reported that struggling to regain market position in Brazil after seven years of losses, Volkswagen plans to introduce a new low-cost car for South America's largest country within four years.

The new car will be developed in Brazil and will appear in showrooms in 2006 or 2007, Volkswagen officials said Thursday.

While Volkswagen's subcompact Gol is the top-selling car in Brazil, the company wants to regain its position as the country's No. 1 auto producer.

After years as Brazil's leading automaker, Volkswagen is now in the No. 3 position behind General Motors Corp. and Fiat SpA.

Analysts said Volkswagen should have revamped its lineup earlier, but fell behind after so many years as Brazil's top auto seller.

"Back then they didn't worry about (new models) because they had market leadership," said Simone Escudero of Sao Paulo's Austin Asis consultancy. "When you're in that position, why invest?"

The company wants the new car to be the cheapest available in Brazil, said Peter Hartz, Volkswagen's director in charge of South America and Africa.

Volkswagen and other auto makers invested heavily in Brazil during the 1990s, but a series of economic crises decimated sales.

Sales this year are expected to decline about 10 percent compared to last year, according to Anfavea, the industry group representing auto manufacturers.

Volkswagen, which has posted losses in Brazil every year since 1997, announced a major restructuring of its operations here in July.

The company said it would take a charge of 300 million reals ($100 million) to third quarter earnings in eliminate about 4,000 workers, but union resistance could increase the cost. Volkswagen has offered to pay about half of those workers more than two years' salary to leave their jobs.