GERMANY: VW to abandon premium pricing strategy

By just-auto.com editorial team | 29 November 2004

High-volume Volkswagens such as the Polo, Golf, and Passat will no longer be the highest-priced models in their segments.

Volkswagen is shifting pricing strategies on its mainstream cars to make them more competitive against rivals from Asia and France, Automotive News Europe said.

VW's policy of taking the premium-priced position was initiated in the 1990s by then-CEO Ferdinand Piech.

For example, next spring VW will price a new Brazilian-built Fox below the Lupo it replaces as part of a bid to double its European sales in the minicar segment.

"VW brand won't position its cars at the high end of each segment any more," said a VW brand source in Wolfsburg.

Another source said that the next Passat upper-medium model that will debut in March at the Geneva motor show will have a more competitive entry-level version equipped with steel wheels.

"It won't get alloy wheels as standard, as initially planned," said the source. "That will save a few hundred euros for a start."

Industry analysts welcome the new strategy. But they also see risks, especially when many basic designs are shared by Volkswagen, Skoda, Seat and even Audi.

"It is unavoidable that with 50 models for Seat, Skoda and Volkswagen, that there will be some overlap between them," said Maria Bissinger, auto industry director at Standard & Poor's in Frankfurt.

Adam Jonas, an analyst for Morgan and Stanley in London, said that the move make sense following a recent seven-year labour contract between VW and IG Metall in Germany.

"They need to keep plant utilisation high, and that does not work with super Passats and Phaetons," Jonas said.

Volkswagen brand's premium-price positioning has sacrificed some market share to French, Japanese and Korean brands, he said.

"Volkswagen used to have pricing power. But with increased competition from rival brands which have improved perceived quality" VW's price strategy is under pressure, Jonas said. "Because of that, Volkswagen may not be able to benefit from increased volume."

VW will have trouble being price competitive on Golf. The car has many parts and systems that are more costly than its rivals. For example, its multi-link rear suspension costs more to manufacture than the suspensions of the Opel Astra or Ford Focus.

In 1992, Golf and Golf station wagon alone sold 957,000 units globally. Last year that number was 647,067 units.