GERMANY: VW plans large simple sedan at emerging markets

By just-auto.com editorial team | 14 June 2005

Volkswagen wants to develop a large-sized affordable sedan that will compete with Renault's Logan in emerging markets, says Automotive News Europe.

VW code-named the program the 3-K Project because it is looking for a manufacturing cost of E3,000 per car. That would let it compete with the Logan on retail price. If the VW group board approves the program, VW could launch the 3-K in China by 2008.

The car would be "a sedan with four doors and a large trunk, slightly bigger than the Logan", a former VW executive said. Other potential markets are Brazil, India, Malaysia and Mexico.

"The trend in emerging markets for basic transportation is for sedan variants of small cars, not for hatchback minicars like in Europe," the source said.

Automakers increasingly recognize that new motorists in emerging markets prefer simple but roomier cars with four doors and a big trunk for luggage rather than sophisticated, feature-laden minicars.

The trend started in Latin America and China and has since spread to other emerging markets, including central and eastern Europe.

"Offering basic transportation is the right move to enlarge your customer base in emerging markets," said Arndt Ellinghorst, head of European automotive research at Dresdner Kleinwort Wasserstein in Frankfurt.

He sees the 3-K Project as a better move for VW in developing markets than more expensive models such as the Polo and Golf.

But Ellinghorst also warns that basic transportation programs are a necessary entry cost that will generate only low margins.

In the medium term, they may generate 10 percent to 15 percent of Renault revenue but only 3 percent of its profit, Ellinghorst says.

The plan "makes a lot of sense for VW," said Philippe Houchois, head of European auto research at JP Morgan in London. He thinks the 3-K Project could turn China into an export base for VW.

The 3-K Project is a return to VW's low-cost roots after its controversial reach for luxury status with projects such as the Phaeton and Touareg. The 3-K development team was created last year after VW group CEO Bernd Pischetsrieder vowed to reclaim VW's low-end expertise.

In eastern Europe, Renault launched the Logan under its Dacia brand in September 2004 starting at E5,700 and averaging E7,100. It planned to introduce a more basic version this month at about E5,500 - but has delayed that because of continued demand for more expensive versions.