Volkswagen merges into crowded midsize car market

By Ken Thomas

Associated Press

Published: Monday, Jan. 10 2011 12:00 a.m. MST

Volkswagen Group of America President and CEO Jonathan Browning, right, introduces the new Volkswagen Passat, at the 2011 North American International Auto Show Monday, Jan. 10, 2011, in Detroit, Mich.

Tony Ding, Associated Press

DETROIT — In its quest to become a top-selling car company in the U.S., Volkswagen must win more middle-class American car buyers with the new, redesigned sedan it introduced Monday.

Yet the Passat, a bigger and less expensive version of the older model, is jumping into a crowded field, and its looks may not go far enough to help VW steal customers from strong competitors such as the Ford Fusion and Hyundai Sonata.

The German company took the wraps off its revamped car during media previews at North American International Auto Show in Detroit, promising a car that will "change the rules in the midsize segment," according to Jonathan Browning, VW's president and chief executive of the Americas.

The unveiling followed a movie clip featuring cowboys on horseback riding through a western landscape. The message was clear: The Passat must appeal to American tastes and middle-class budgets if the company wants to meet its ambitious goal of tripling overall sales in the U.S. within a decade. VW sold just 360,000 vehicles in the United States last year.

The Passat's unveiling came on the same day car companies at the auto show unveiled a new Honda Civic, Chrysler 300 sedan and the Prius wagon, Toyota's first entry in a planned family of Prius hybrids.

Decades ago, VW captured car buyers' fancy with the iconic Beetle. The new Passat isn't that striking, analysts and executive attending the auto show said.

The Passat, with its sleek but benign lines, looks similar to competitors such as Camry, Accord and Fusion.

Mike Jackson, the CEO of AutoNation Inc., which is the largest auto retailer in the U.S., said the new Passat's styling is too conservative for many buyers. Traditionally, car companies such as Toyota Motor Co. could afford to have bland styling because buyers were more concerned with quality, reliability and high resale value.

Now that all brands have those traits, companies have to differentiate their cars from the pack, he said. "Buyers are asking for styling that is distinctive and recognizable. That's the future."

U.S. sales of the Passat rose 12 percent last year to 12,497. That's a tiny percentage of the sales of competing sedans according to numbers compiled by Autodata Corp. Toyota's Camry was the top selling sedan in the U.S. last year. Sales were 327,804, despite an 8 percent drop from 2009.

"It is a bit of a gamble because of very good competition," analyst Jesse Toprak, a vice president at TrueCar.com, said of the Passat.

The Passat offers a competitive price for its size. It's expected to go on sale later this year at about $20,000, about $7,000 cheaper than current models built in Germany and nearly matching the price of rivals Fusion, Camry, Accord and Sonata.

Volkswagen will make the new Passat at its $1 billion Chattanooga, Tenn., plant — the company's first U.S. assembly plant since it closed its New Stanton, Pa., plant in 1988 following disappointing sales.

Volkswagen executives said the Chattanooga plant, which is hiring about 2,000 employees and could create as many as 10,000 spin-off jobs, was a key part of its U.S. plan. By building cars in the U.S. and buying parts locally, the car company can cut transportation costs while insulating VW against currency fluctuations between the U.S. dollar and the Euro.

The company also benefits from lower labor costs in the U.S. compared with Germany, and a new plant whose production costs are lower. Toprak said the labor cost of producing Passats in Tennessee is about one-third that of Germany, based on a comparison of hourly wages.

Beyond price, other Passat selling points for the U.S. buyers are its size. It's four inches longer and one inch wider than the current version. And it's gas mileage is an estimated at 43 miles per gallon on the highway for a diesel version, 32 mpg for a 2.5-liter traditional gas engine and 28 mpg for a 3.6-liter.

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