Dialing it Back
Volkswagen cuts Jetta price in effort to regain volume; upmarket move to come later
By DIANA T. KURYLKO | AUTOMOTIVE NEWS
AutoWeek | Published 06/19/06, 8:03 am et
WOLFSBURG, Germany -- Volkswagen is abandoning its strategy of moving the Jetta upmarket and will remove content from the vehicle for the 2007 model year, slashing the price $1,410.
Adrian Hallmark, executive vice president of Volkswagen of America Inc., said lowering the price of the Jetta, VW's biggest seller in the United States, is part of the brand's return to its volume image. VWoA will abandon attempts to move sharply upscale, at least for a few years, Hallmark said.
"If we are going to be a volume player, we have to play the volume game," Hallmark said at a press event here. "If you look at the price-volume relationship, the decision is really clear."
VW dealers agreed to reduce profit margins to support the move.
Hallmark confirmed that 2007 Jetta prices will begin at $17,105, including shipping. The cheapest 2006 Jetta starts at $18,515, including shipping.
Hallmark said the base 2007 Jetta will not be a totally stripped model. VW can't remove features such as antilock brakes or extra airbags. Those items are standard in Europe and would cost too much to remove, Hallmark said.
VW dealers agreed to take a cut in profit margins on the base Jetta as well as the entry Rabbit compact, said Hallmark. He would not disclose the size of the cut but said it is "not more than 1" percentage point.
Hallmark said VWoA also cut its profit margin on the two cars.
The Jetta price cut follows similar action on the Rabbit, the next generation of the car that's called the Golf everywhere else in the world. It will go on sale this summer with a base price of $15,605, including shipping. The base 2006 Golf sells for $16,660, including shipping.
The new pricing reflects Volkswagen of America's decision to compete with volume brands, including Toyota, Honda, Mazda and Mitsubishi, Hallmark said.
That represents a turnaround from VW's strategy when it launched the larger, redesigned Jetta in the spring of 2005. Len Hunt, Hallmark's predecessor, said at the time that the Jetta "can actually bridge three segments" -- premium subcompact, premium mid-sized and entry-luxury.
In Germany, VW's efforts to become more of a premium brand "worked far better than in the U.S., where it did not work as well," Hallmark said.
The problem in the United States is that the Jetta's price was comparable to that of larger sedans such as the Toyota Camry, he said.
Jetta sales peaked at 145,000 units in 2001. This year, the first full year of the redesigned vehicle, VW expects to sell about 105,000 units, Hallmark said.
Hallmark says the Phaeton luxury sedan, which won't be sold in the United States starting in the 2007 model year, and the Touareg SUV both failed as premium products there.
VW will regroup and try to hit higher price points with the minivan from the Chrysler group that VW will rebadge. That vehicle goes on sale in 2008, Hallmark said.
VW is considering a new entry-level vehicle, he said. It also will try to move the brand upmarket with coming vehicles such as the Eos hardtop convertible, due this year.
Next year, a station wagon version of the Jetta goes on sale as well as a performance version of the Rabbit called the R32. A face-lifted Touareg also debuts in 2007. A compact SUV based on the Concept A vehicle shown at this year's Geneva auto show is expected in 2009, Hallmark said.
VW needs such vehicles before trying to bring back something in the price range of the Phaeton. VW priced the Phaeton at $68,655 for a V-8 model, including shipping and a $1,300 gas-guzzler charge.
Said Hallmark: "Instead of going for the penthouse, we need a few floors below."