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VW & Audi - Redundant Brands for the US Market?
    Managing Editor

Simple Siblings or Identical Twins
My first question would be; who hasn't noticed this? The similarity between VW brand and Audi brand vehicles is not only noticeable, it's flat out blatant. While sharing technology is a good thing, sharing markets with sister companies is most definitely not. I believe there's a word for trying to move into a market already occupied by a company you own, it's called cannibalization. In the case of Audi and VW, it seems like each company is producing an increasing number of comparable vehicles and could be fighting each other for sales. In the United States, VW has traditionally played in the same market as mainstream manufacturers such as Honda, Toyota, Nissan, etc. In the past few years however, VW has been introducing vehicles that seem to step on the luxury toes of its sister company, Audi.

Passat 1.8T and Passat V6
The VW Passat was the first hint of the VW brand's new aspiration to go upscale. When the Passat was redesigned for model year 1997.5, it was built off the same chassis as the Audi A4 at the time. Not only was it built off the same platform though, it looked the part, too. Both exterior and interior cues gave the consumer a feeling that this car was really just an Audi that got mixed up in the badging process. This is definitely not a bad thing for the VW brand consumer, as they are getting what is essentially a luxury car for much less money. However, it leaves the Audi consumer feeling like all that extra money they paid went towards a different badge on the grill and trunk. Obviously, the two cars do have differences, which is what makes their coexistence possible. However, nobody can deny that the Passat is arguably a bargain basement Audi. This idea was further strengthened when 4-Motion AWD (The mechanical twin to Audi's Quattro AWD) was introduced as an option on the Passat in the United States. So now, a buyer could get the same V6 engine (2.8L), the same AWD system, the same transmission (5-speed Tiptronic) and most of the features of a fully optioned Audi A4 2.8 Quattro in a larger package for less money. For some consumers, that pretty much steals the A4 2.8's thunder.

Passat W8
If VW's luxury push had stopped at the Passat V6 4-Motion, it would at least have been understandable that VW wanted a "halo" car that would act as a stepping stone for consumers over to the Audi brand. However, when VW introduced the Passat W8 in 2002, it left a lot of people wondering exactly who was going to spend roughly $40,000 on a VW. That kind of money will buy you a lot in the car market, you certainly have a sizeable selection of cars with more cache than a VW. My best guess was that VW was banking on the innovative W8 engine to reel customers to the brand and get people to start thinking about VW in a different light - a more luxurious, upscale light. The W8 was in and of itself a great automobile and definitely worth every penny. However, VW had mistakenly hoped that the majority of the buying public would accept the idea of a VW that cost as much (or more than) as many cars from established luxury brands like Acura, Lexus, BMW and of course, Audi. Sales of the W8 consequently lagged below expectations and there are currently no plans to market a 2006 Passat (which will be the next generation of the car) incorporating the W8 engine in the U.S.

You'd think that after seeing the failure of the Passat W8 in the marketplace, that VW would bring in the reigns and rethink their strategy. Well, seemingly just to prove how persistent the company is, VW announced plans to produce the Phaeton; a full-on, mostly hand-built luxury sedan complete with 8 and 12 cylinder engine options. News like this alone was enough to make one step back and wonder what the hell VW was thinking. Then you found that VW was also building a special $186 Million, glass walled, hardwood-floored assembly plant in Dresden specifically for production of the Phaeton. Apparently, VW was pretty confident in the future success of their new luxury-liner. Admittedly, this author was/is fully intrigued by the vehicle, but I had to wonder why VW - the same company that produces the plebeian Golf - would try to market a car that essentially emulates the Audi A8, both in price and in feature content. After all, if one is spending over $60,000 on an automobile, why wouldn't they pay a couple thousand more to have the four ring emblem panache and free scheduled maintenance? At this level of purchasing power, cache is everything, and if VW didn't have enough of it to play at the $40,000 price point, what makes them think they have enough to play at $60,000+? Again, like the W8, the Phaeton is a wonderfully engineered and packaged vehicle in my opinion, but not everybody with $60,000 burning a hole in their pocket thinks the same way I do. Many will argue that the Phaeton targets a more discreet, affluent consumer who desires a luxury automobile with all the trimmings and which also draws little attention to itself. What remains to be seen is if enough of these consumer types exist to make the Phaeton a worthwhile pursuit on VW's part. Apparently, only about six people (on average) per month are buying into the Phaeton in Canada, which is typically a VW stronghold. It also doesn't help that the VW CEO, Bernd Pischetsrieder recently called the styling of the Phaeton a mistake, either. Maybe this is a sign that even VW is beginning to realize its mistake, albeit after investing an estimated $350 - $500 Million on developing said mistake.

It's Not Just the VW Brand...
While the VW brand is trying to climb up-market, it seems that with the introduction of the Audi A3 to the U.S. market in 2005 that Audi will be reaching down to catch some prospective high-end Jetta/low-end Passat consumers. In the same way that I believe the Phaeton is an unnecessary redundancy next to the already established Audi A8, I don't think it's a smart idea to introduce a smaller Audi that competes in the same category as the already available VW Jetta. Hopefully VW/Audi of America can successfully slot the A3, both feature and power-wise, between the Jetta and Passat with a clear dividing line between the three vehicles. If not, there might be some more redundancy in the VW/Audi lineup coming our way. Also, in general, whenever a luxury car brand has tried to market an inexpensive compact model in the U.S., it hasn't done extremely well in the market. The past BMW 318ti and the current, slow-selling Mercedes C230 coupe are good examples. Though, apparently BMW feels that they can be successful at a second attempt with the upcoming 1-Series, which is probably the reason for Audi deciding to bring the A3 over here.

The Final Review
It is still beyond me why the VW brand would try to compete in the same market as sister company Audi and vice versa. In my personal opinion, the VW brand's job should be to introduce consumers to relatively affordable German automobiles. When said consumer works their way through the VW ladder, they then step over to the Audi ladder and climb up yet again. VW claims that they chose to produce the Phaeton because they discovered 15% of VW consumers were ready to step up to a bigger luxury car and were shopping elsewhere since the VW brand had nothing to offer past the Passat. Well, where did these consumers go? Did they hop on over to the Audi dealership, or did they go over to BMW, Lexus, Mercedes, etc.? It makes a difference, because if they went over to Audi, then what's the big deal? That means the consumer stayed within the family and VW did its job by giving that consumer a good impression of VW/Audi automobiles.

You'll notice the same philosophy exists with other companies that house both mainstream and luxury brands. For instance, Honda of America fronts an extremely well appointed vehicle line up, but you'll notice that they are careful not to step too much on the Acura line up. There is a little overlap, but there are features that are available on Acura automobiles that don't exist on comparable Honda vehicles. Also, by no means does Honda offer a vehicle equivalent to the Acura RL or even TL. What would be the sense in having a separate mainstream and luxury division if there isn't a difference between the vehicles that the two brands offer? Toyota and Lexus operate in much the same way. This is where most people point to the Toyota Camry XLE V6 and Lexus ES330. Sure, the Camry and ES330 are mechanical and (to a point, mostly externally) aesthetic twins, but there are extra touches and features that define the ES330 as a luxury automobile apart from the family car stigma that follows the Camry. Think about it, when people say "family car", which name comes to mind first - Toyota or Lexus? In short, both companies (Honda and Toyota) give the consumer a reason to consider stepping up to an Acura or Lexus automobile - to gain those extra features and details. VW/Audi doesn't seem to understand that concept, though. If VW/Audi wishes to have some semblance of harmony and continued success within their vehicle lineup, they shouldn't be too greedy and have the VW brand try to play in U.S. markets where they have never existed and where the Audi brand is currently well established. Instead, they should spend more money on continually improving their current, successful offerings and focus on giving more consumers a favorable first taste of German automobiles.


Bernd, You Listening?


Tim, you've said it brilliantly. A recent issue of one of my favorite car magazines was saying how Ferdinand Pietch, Pischetsrieder's predecessor, was at the VW display at Geneva, standing next to Pischetsrieder. The journalists all wanted to yell, "Don't listen to him, he's crazy, and he's the one who got you in this mess you're in today!" Poor Bernd. You see, Mr. Pietch, descendent of Ferdinand Porsche (founder of both VW and Porsche), had a grandeous vision for his beloved VWAG. VW will fight Mercedes and Audi will fight BMW. The cars would be similar, but would have vastly different dynamics (VW's being plusher riding cars than the more sporting Audis), but would compete in the same market space. His idea was to woo either the pure luxury buyer (with VW) or the driving enthusiast (with Audi). What has happened is that VW's move has essentially failed, and the little sales VW is making are most likely taking away from Audi sales. What's worse is that Pischetsrieder was in talks with Maserati for a technology swap. Maser would get the Toureg platform for an SUV (even though Audi is coming out with a variant of their own), and VW would get the Quattroporte platform for a car to slot between the Passat and Phaeton. Does anyone see the problem there? This problem made Audi very angry. The A6 slots between these cars now. And why a Maserati platform? Well, Bernd wanted a car to drive like a sportier E-Class Mercedes, or like a 5-Series BMW, but slightly larger. Hmmm...sound familiar to anyone? That's the mission of the Audi A6.

So, Bernd (I can call you Bernd, can't I?), if you're listening, get your house in order. Delineate your brands more clearly, and stop taking sales from each other. Heck, if Acura and Lexus can successfully become the high-end brands that Honda and Toyota owners move to, Audi can be the same for VW. What's more, Acura and Lexus are in wholly different locations from their mainstream siblings, making it physically harder to usher a customer to the in-house luxury maker. Many VW dealers are also Audi dealers (though certainly not all), making it much simpler to move someone over to the higher-end, more sporty vehicles with the four rings of the Auto Union on their grille.

Bernd, from a couple enthusiast of VW, realize that Mr. Piech left you with a mess, and you aren't making it better.