Spot the interloper; BMW, Mercedes, Jaguar, Lexus, VW? Phaeton’s sales forecasts have been slashed as Piech’s folly heads for the rocks. ‘Phaeton’ – a light, four-wheeled open carriage, usually drawn by a pair of horses. That’s the definition according to my dictionary, and VW’s new Phaeton luxury car might just as well be horse-drawn as it faces up to the competition from the Mercedes S class and BMW 7 series, writes Neil Winton. Additional analysis and comment by Dave Leggett.
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The Phaeton has little chance of success as it struggles to make an impact against the entrenched opposition, which also includes Jaguar, Lexus, and its own stable-mate, Audi. Phrases like “ill-conceived”, “Piech’s folly”, “incredulity”, “doesn’t make sense”, echo around when you talk to experts about the Phaeton’s prospects.
“It is really hard to see a good reason why anyone would really buy it, said Al Bedwell, research manager at J.D.Power-LMC Automotive Forecasting Services.
Which is a pity when you consider the awesome machine that is the VW Phaeton.
Almost 100,000 euros for a VW
The Phaeton is part of the mass car manufacturer’s improbable onslaught on the luxury sector, which also includes the Touareg Sport Utility Vehicle. The Phaeton is launched with the choice of two engines, a 3.2 litre V6 and a 6.0 litre “W” 12 cylinder. A 4.2 litre V8 and a 5.0 litre V-10 diesel engine follow later this year. Prices start at 60,000 euros for the V6. The W12 costs an eye-watering 95,564.00 euros – almost 100,000 euros for a Volkswagen.
Every Phaeton comes with air suspension, and a plethora of computerised safety devices including 8 air bags. VW brags that its air conditioning system is the only one in the world capable of maintaining a steady interior temperature of 22 degrees Celsius while the vehicle is cruising at 186 mph in an outside temperature of 50 degrees.
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By GlobalData
Folie de Grandeur
Perhaps you are starting to realise why this is seen as folie de grandeur, set in train during one of ex-CEO Ferdinand Piech’s more egocentric moments. I suppose it is possible that there are buyers out there who would demand such perfection, but I doubt it.
There’s more. The car has parking sensors, tyre pressure warning, a powered rear sunblind, solar sunroof, television with teletext, radar automatic distance control, and xenon headlights. To use all the available technology you would have to go on a course. In Britain, every Phaeton owner will receive a year’s membership of “Essentially”, – a concierge service that books concert tickets, weekend breaks, or tables at exclusive restaurants.
Massage Function
“The Phaeton’s seats are designed for optimum comfort, with 12-way electrical adjustment fitted as standard. Standard on the W12 and optional on the V6 is an 18-way system with memory; climatisation and massage functions. Five seats are standard on every Phaeton, with the optional package of a four seater available for extra luxury. These two rear seats enjoy 10-way electrical seat adjustment,” VW said.
Remember, this is a Volkswagen.
Journalists driving the Phaeton agree that it is a magnificent machine. Quality and driveability put in on par with the competition. VW has not only spent about 700 euros million developing this car, but it also built a special plant in Dresden costing 200 euros million to make it – ” a state-of-the-art Transparent Factory, featuring highly contemporary architecture and a unique working environment. Passers-by are able to see the cars moving along the rail-less production lines, while customers can visit the factory in order to gain a greater understanding of how their Phaeton is produced,” VW said.
Spot The Phaeton, Save The Project
This might be the saviour of the project. If VW can black out most of the transparent factory and leave just small windows, it could then charge tourists to Dresden to view Phaetons going down the production line. They are likely to see more Phaetons there than on the autobahns. VW’s bottom line would be transformed.
Why Not Audi?
Many industry observers wonder why VW has chosen to pursue its luxury ambitions using the more prosaic brand, when it already has the Audi upmarket subsidiary. The launch of the Phaeton in fact has delayed the debut of the Audi A8, which is a genuine contender against the likes of Mercedes and Lexus. The Phaeton launch, and its actual existence has diluted attention for the A8 and will hamper its sales.
Phaeton sales forecasts are taking a beating. VW initially estimated that it would sell about 30,000 Phaetons, but was forced to slash this back drastically to 15,000 a year, and then 10,000, as hoped for buyers failed to materialise.
Last year VW sold 3,009 Phaetons, less than a third of the hoped-for total. (Mercedes will sell about 80,000 S classes this year; BMW about 55,000 7 series cars.)
VW officials talk about how the Phaeton’s role as a technology showcase will have a kind of halo effect and will somehow trickle down to persuade more people to buy Passats and Golfs.
“This doesn’t make sense to me,” said Mark Fulthorpe, analyst at CSM Forecasting.
Folly
“VW could do technology showcases using its Bentley or Bugatti brands. These would be adequate showcases for technology. This all seems to have been part of Piech’s folly, it was all set in train during his reign,” Fulthorpe said. Piech handed over the reins at VW about a year ago to Bernd Pischetsrieder, a former BMW CEO.
VW’s venture into the luxury segment has also been tainted by recent quality control problems with its mainstream cars. During the winter in Germany, some VW engines failed in cold weather, while in the U.S., faulty ignition coils were causing breakdowns and this led to a huge recall; not the ideal environment for saying your cars are as good as Mercedes, BMW and Lexus. Consumer satisfaction surveys showing VWs performing at below the industry average won’t help either.
Smarter To Build On Audi A8
Fulthorpe reckons that it would have been smarter for VW to concentrate on building up A8 sales in this highly competitive, and dwindling, sector. Maybe the U.S. market will provide the hoped for fillip to Phaeton sales? No chance, according to Fulthorpe.
“In the U.S., the VW brand is even more of a workaday proposition, almost to a greater extent than here in Europe,” Fulthorpe said. He reckons that annual, worldwide sales might eventually hit between 12,000 to 14,000, but profit prospects seem non-existent.
“They will have to sell a shed-load of them to make a return, about twice as many as they plan to sell on a good day.”
Piech To Blame
J.D.Power-LMC’s Bedwell said if the project was being considered today, it would be dumped, and blamed Piech for the decision. “It’s Piech’s legacy. It wouldn’t be conceived now in this environment, with less people with money to buy in this segment. It might have made sense at birth when the economy was in better shape, but this was just vanity, pushed through by Piech; he made it happen. The VW badge, with the best will in the world, just doesn’t cut it in this segment,” Bedwell said.
VW’s timing was bad
“There’s the new Jag (XJ) to compete against; more cars being offered to fewer and fewer buyers. It’s a difficult time for VW to break into that segment. But it’s good news for someone looking to by a nice used luxury car on the cheap,” Bedwell said.
Just how much room for Phaeton is there? In North America and Western Europe (overwhelmingly the most significant luxury car markets), the two models combined account for a little under 100,000 units per annum. Precise model numbers in a given year are usually dictated by model cycles, which in the case of the BMW 7 and Mercedes S, usually run conveniently counter-cyclical to each other. The Jaguar XJ series accounts for approximately 20,000 units a year and the Audi A8 for about 12,000 units. Volkswagen was originally talking about production volume for the Phaeton of around 20,000 units per annum in the medium term, although the Dresden facility has an annual production capacity of 35,000 units. 10,000 a year now seems more plausible although even that may be a little ambitious. It does not seem unreasonable to assume that a high percentage of planned-for Phaeton sales will be conquest sales involving other European brands (hard to see Passat owners trading up that far). Much of it is therefore likely to involve BMW and Mercedes-Benz, with ideally – from VW’s point of view – Audi seeking to stay out of it and differentiate itself as a high-tech, luxury sports brand. The big question, as ever, is to what extent luxury buyers will be prepared to accept Volkswagen as a luxury brand. Initial market reaction does not look very encouraging in that respect. There will be some customers who will have the urge to be different and let the world know, but are there enough of them? In North America, Volkswagen’s brand image hardly looks up to the job of supporting the super-luxury Phaeton (just take a look in just-auto’s forums). In Europe a Volkswagen is, for many, well, a functional thing of utility. Volkswagen’s marketing people like to talk about the Golf as the brand’s centre of gravity with brand stretch up and down along a core axis of ‘product excellence’ rather than overt status. Indeed, the VW family traits are pretty obvious in the three-box design of the Phaeton, which bears more than a passing resemblance to the Golf-based Bora/Jetta. But is that just fanciful talk when viewed from an end of the market where status counts for a lot and prestige is heavily embedded in some very established brands? One thing is clear: Volkswagen faces an uphill struggle with the Phaeton. If it flops badly, Pischetsrieder can always blame his predecessor rather than carry the can himself. But he’ll be reluctant to go down that road, especially after all that spending on the car. Indeed, the danger is that VW perseveres too long with trying to make a success of an ill-conceived project rather than running it down. Tinkering with Phaeton could mean it is a cash-drain in the long-term. In business, knowing when to admit defeat and walk away can ultimately be the best strategy, if a politically difficult one in the short term. But what about that heavily under-utilised Dresden facility? Put something else in there? Tempting, but that would carry the disadvantage of further undermining the Phaeton’s projected uniqueness. Maybe the plant will be turned into a more mainstream tourist attraction, as has been speculated in some quarters. That would really be a public admission of failure – and a costly failure at that. Volkswagen needs more Phaeton sales, but where are they going to come from? |
