Cost-cutting VW bets big to revamp loss-making luxury Phaeton

Wed Jan 28, 2015 11:14am EST
 
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By Andreas Cremer

BERLIN (Reuters) - With Volkswagen VOWG_p.DE having embarked on a big cost-cutting drive, industry experts are baffled why the "people's car" maker plans to spend millions of euros upgrading a money-losing luxury sedan.

The 76,000 euro ($86,192) Phaeton, a pet project of Chairman Ferdinand Piech, has never met VW's original sales target of 20,000 cars annually. Analysts say the executive saloon, which cost more than 1 billion euros ($1.13 billion) to develop and came out in 2002, should be axed.

But sources at VW told Reuters that the company is now planning a more advanced version of the Phaeton - described by Bernstein analyst Max Warburton as one of the three "most loss-making European cars of modern times."

The plans appear all the more perplexing to analysts as VW has pledged to make annual cost savings of 5 billion euros ($5.67 billion) at its passenger-car brand by 2017, as the world's second-biggest carmaker by sales seeks to narrow the gap with global leader Toyota 7203.T.

Announcing the "efficiency program" last July, Chief Executive Martin Winterkorn promised "painful action" to revive the core brand where profit margins have been languishing due to a proliferation of models and parts.

"It's no longer all about bigger, higher, further," the CEO told managers at a Dresden strategy conference in December. "Now it's about being leaner, faster, more efficient."

His comments echoed VW's plans to reduce the number of costly parts and drop some non-profitable variants from the German group's 310-model line-up as Europe's largest automaker shoulders costs of future growth and investments in lower-emissions technology.

Revamping the Phaeton will fly in the face of the CEO's cost-cutting drive, said Evercore ISI analyst Arndt Ellinghorst, adding that switching production of the model to VW's modular MLB platform could cost as much as 650 million euros ($737.17 million).   Continued...

 
Volkswagen Phaeton Exclusive is pictured during a media preview day at the Frankfurt Motor Show (IAA) September 10, 2013. REUTERS/Pawel Kopczynski