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Same-Day Analysis

VW working on new budget car brand – report

Published: 12 October 2012

VW is reportedly considering a new budget car brand to rival Dacia and further cement its drive to become the world’s biggest OEM by sales volumes .



IHS Automotive perspective

 

Significance

VW is in the planning stages of establishing a new budget passenger car brand, according to a report from Car Magazine.

Implications

The brand will be a direct rival to Renault's Dacia brand and will be used as an entry point to the VW Group in emerging markets.

Outlook

A new budget car brand would further aid the company's drive to be the world's biggest OEM by 2018 by sales volume. However, it remains to be seen whether the company would take on such a project when it is still trying to integrate Porsche and MAN into its group structure while there are also signs of potential cost-cutting elsewhere.

The Volkswagen (VW) Group is reported to be planning to launch a new entry-level budget brand which would be a natural rival to Renault's Dacia brand in emerging markets. A report in Car Magazine claimed that the publication had seen internal documentation relating to the project. The new brand will have cars priced from just EUR6,000 (USD7,734) although the report stated that no name for the brand has yet been decided on. The brand will be focused on growing sales volumes and share in global emerging markets with a particular emphasis on the Brazil, Russia, India and China (BRIC) markets. VW will apparently plug in to its existing production networks in these locations to manufacture the models under the new brand.

The commercial secret weapon that VW intends to unleash with this new budget brand is its existing platform technology, which is now being superseded by its new modular architecture, the MQB and MLB platforms, that will form the basis of the all the company's mainstream future transverse and longitudinal-engined models respectively. The new budget brand will have its models based on the previous generation of platforms, which include the PQ24/25 and PQ35 architectures that underpin the outgoing range of B- and C-segment models. For example the current VW Polo, Skoda Fabia and SEAT Ibiza are based on the PQ25 platform and the outgoing Mark-VI Golf, SEAT Leon, Audi A3 and Skoda Octavia. The R&D cost of these platforms have been fully amortised and the fact that a car as capable as the Mark-VI Golf is based on the PQ35 platform shows that it is still capable of forming the underpinnings of a class-leading, or near class-leading vehicle. These budget models will not be class-leading in terms of dynamics, ride and comfort, but they will be perfectly adequate in the price segment they would occupy.

The basic structure of the range according to the Car report is as follows:

  • A simple sedan model, similar in concept to the Skoda Rapid priced from EUR6,000.
  • An estate model based on the same basic design from EUR7,000.
  • A de-contented MPV or SUV model along the lines of the Dacia Duster from EUR8,000.

Outlook and implications

It is a potentially valuable strategy for VW to introduce a new low-cost brand based on its existing and amortised platforms. It is a way of monetising what is notionally old technology for a fraction of the development costs of, for example, the latest MQB-platform Mark-VII Golf. VW has seen the potential for offering a range of models based on older platforms alongside its latest offerings in China, and China would be a key market for the new budget brand, as would India. In addition, there is real potential for a VW budget brand along the lines of Renault's Dacia brand in the Russian market. Renault is working on a new range of vehicles based on the Logan's B0 platform for Russia, which will be manufactured and marketed under the Renault, Nissan and Lada brands. VW could plug in to its existing Russian production network and offer a compelling offering in a market that could offer the most growth potential for the lower-cost segments in the wider European region. However, this would be a major project for the company at a time when it is still working on the complex task of integrating Porsche and MAN into the wider group structure. There are also signs that VW is thinking about cutting costs in other areas, including some high-end products that would struggle to recoup their investment if they were launched into a global recession, with the company reviewing the decision to go ahead with the Bugatti Galbier ultra-luxury sedan and the proposed Lamborghini SUV, according to an Autocar report. According to the Car report a final decision is due to be taken by VW's main executive board in the next few months. However, planning is supposedly at a very advanced stage with production scheduled to start if the green light is given in the final quarter of 2014. Therefore, a new budget brand would have the ability to form a vital component of VW's overall corporate strategy of becoming the world's largest vehicle group by sales by 2018.

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