Volkswagen's cheap tricks

DESPITE the return of its budget brand Skoda, Volkswagen Group Australia (VGA) is desperate for a low-cost small car for the Volkswagen brand that would sit below the current $16,990 Polo hatchback – and it is pinning its hopes on a new model currently in development.

There are few details of this new entry-level model, but it is understood the car would be built on a new platform that would be cheaper to produce than the current architecture underpinning the Polo and the slightly smaller Fox, which was mooted for Australia but is no longer under consideration.

There is a good chance the new model could be built in the Asia-Pacific region, whether or not Volkswagen’s protracted negotiations with Proton lead to a Malaysian production deal.

Indeed, a Reuters report this week said Volkswagen plans to build an assembly plant in Indonesia next year to build the small car. It cited the Investor Daily newspaper, which quoted an Indonesian government official who revealed that the plant would manufacture a small car and a van with an engine size smaller than 1.5 litres.

VGA managing director Jutta Dierks told GoAuto that a new car to sit below the Polo was exactly what the company needed.

“I hope that we get a new entry-level model as quickly as possible,” Ms Dierks said.

She has ruled out bringing the Fox to Australia to sit below the Polo, because it is only available as a three-door and is not available with an automatic transmission.

“The killer is no automatic. Of course, in Europe small engines never go together with automatics,” Ms Dierks said.

Ms Dierks said she hoped the new entry-level car would not be as small as the Fox.

“Hopefully now when we think about low entry, we think about a little bit bigger car than the Fox, because that is what an emerging market needs. You put them in a small car and they don’t get enough value for money.” Ms Dierks is confident the new affordable car would be available to all markets, but there were still some unknowns.

“The question is when is something like this available and where will it be built?” she asked.

Left: Chinese-built Polo Classic.

The question of where the car will be built is especially important to Australia, because it could determine whether the car is competitive.

“For us, of course, if I only look at my Australian market, I would love to have a production site in Asia, which would give us some benefits,” Ms Dierks said. “Asia-Pacific is a growing region and we know we are missing out because we don’t have a production site and we don’t have the right car.” Ms Dierks had examined the possibility of a production base in Australia, but concluded that set-up costs and high labour costs meant the operation would simply not be viable.

A more likely location is an emerging country somewhere else in the Asia-Pacific region, although Ms Dierks would not elaborate.

Volkswagen is still discussing a possible tie-up with Proton, but there is little hope anything will materialise in the short-term given those talks started more than two years ago. Along with Indonesia, China is another possibility.

Volkswagen was the first brand to sell a Chinese car in Australia when it imported the Shanghai-built Polo sedan in 2002.

Sold in sedan form only with a high level of specification, no diesel option and a high price of $23,990, it was a dismal failure.

Ms Dierks, who took over the Australian operation in January 2005, said the China Polo plan might have worked if the company had got the specification right.

There could also be an opportunity to import more cars from China if a free-trade agreement between China and Australia is successfully negotiated.

Even so, a Chinese-made Polo would still not be cheap enough to be a truly affordable entry-level car because it is still based on the same platform as the European Polo, which means there are limits as to how much cheaper it can be.

Ms Dierks said that the new affordable car will be especially important to Volkswagen and its Australian division because it is reaching out to a new market segment made up of young people.

“Even though we will have a brilliant year, we (VW globally) will sell six million cars, still we don’t target that area,” she said. “We are not in that market at the moment and it is huge.” A Volkswagen that would appeal to the young would benefit the company more than the return from the initial sale, Ms Dierks said.

“What we have found is that a lot of our customers are loyal, so they upgrade themselves through the line-up,” she said.

“The beauty would be to get the driver as early as possible in the life cycle. At the beginning of our lives we are probably after basic transportation, then when we are better off we can afford a Golf GTI because we like it.”

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