Industry Report: Turmoil in Wolfsburg as Volkswagens C1 Midsize Luxury Car Delayed

Will Overspending to Turn VW into a Luxury Brand Kill Audi?

Things are starting to get messy at camp Volkswagen concerning Project C1, the vehicle that Volkswagen intends on slotting between the next-generation Passat and the über-luxurious Phaeton. The secretive car, which has yet to see the light of day in concept form or via spy photos, has been set back from its original debut of mid-2006 to mid-2007, said to be due to internal troubles between other VAG brands and outside partners.

From what is known, Project C1 is set to be the vehicle to allow Volkswagen the privilege of mingling with established midsize executive sedans such as the Audi A6, BMW 5-Series, Jaguar S-Type, Mercedes-Benz E-Class and to some extent, the Volvo S80. Keep in mind that this is the only segment that VW has not yet entered (not counting the unsuccessful Passat W8).

Insiders suggest that C1 will take the form of a tall hatchback incorporating a long wheelbase and distinctive styling, in order to combine a sporty stance with ample interior room. Its been described by VAG boss Bernd Pischetsrieder as a "Renault Vel Satis that works".

It makes sense that Pischetsrieder would be pushing for an unconventional design, as in his own words, "The Phaeton fails to sell because it is not distinctive enough" (see news archive for Jul 7, 2004: Volkswagen CEO Pischetsrieder Says Phaeton Styling was a Mistake). Talking about the next-generation Phaeton, the VW CEO stated, "It will definitely not be a normal saloon." VW, of course, isnt about to make the same mistake with its midsize luxury entry.

Heres where things start to get messy: Volkswagen wants to build the C1 on a rear-wheel drive platform, something completely different than the brand has ever attempted. Initial word that the C1 would ride on the new A6 chassis has being scrapped now that Maserati has become a joint-venture partner for the C1. This news isnt being taken to very lightly by the folks at Ingolstadt, however, as it was originally Audi that would give the secrets behind its ASF aluminum space frame, Quattro all-wheel drive and six-speed automatic gearbox in return for Maseratis performance know-how in chassis development.

Pischetsrieder is pushing for the link between the C1 and the Italian firm to get hold of the Quattroportes sophisticated chassis and advanced rear-mounted transaxle technology. In a recent issue of British magazine CAR, the VW chair said, "The transaxle principle [ensures] a 47 to 53 percent front-to-rear weight distribution, which is crucial for what I consider to be best-in-class driving dynamics, by quite a long distance." This report spells out the use of a shortened version of the Quattroportes chassis for the C1.

If this follows through, Volkswagen will hold the technology behind the performance-oriented chassis instead of Audi, which as it seems will benefit from very little. To add insult to injury, the C1 could easily be a better performing vehicle than Audis own A6, as well as provide the underpinnings to the next generation Phaeton that goes head to head with the A8. Its easy to see how Audi executives blood could be boiling.

But the problems dont end here. Volkswagen has a notorious track record for incurring extremely high cost overruns, and the C1 is experiencing its own financial difficulties. For instance, the German automaker wants to fit its sublime twin-clutch DSG gearbox to the C1, but to make this a possibility a substantial amount of engineering work must be done to both the chassis and the transmission in order to install it at the rear end of the vehicle. Volkswagen is also developing an air suspension system, which it believes is crucial in combining a supple ride with top-tier handling.

Although such details have not been set in stone, one thing has been made clear by Volkswagen pushing forward with its C1 Project, that VW isnt backing down on its plans to compete at the top end of the executive car market despite lackluster sales of its Phaeton. The C1 Project makes another point very clear too. That Volkswagen will push forward even at the expense of Audi, a plan that makes little sense to most outsiders. After all, Volkswagen AG has labored for years to turn Audi into an accepted premium brand, in the minds of most consumers to be alongside the likes of BMW, Jaguar and Mercedes-Benz. So why the need to transform a brand that has long been the "poster child" of economy into a premium contender? Rather, VW could exploit the brands rich history of entry-level vehicles such as the Beetle, Microbus, Rabbit, Golf and Jetta, into a high volume seller, or in other words keep doing what it has always done, but use the money its wasting on glass factories and put it into building reliable cars. It makes more sense to pull Bentley farther down market than to try and teach a penguin fly, so to speak.

Just the same, market analysts say that the C1 would be the key to raising VWs image in both North America and China, markets where the VW brand name is slowly slipping. The segments best seller, the Mercedes-Benz E-Class, delivered 190,066 units last year, but VW hopes that the C1 will take a big chunk from the three-pointed stars sales. In order to break even, it is predicted that the new model would need minimum worldwide sales of at least 50,000 units.

Even though its a fair way down the road, insiders report that Volkswagen is already considering several spin-offs to the C1, including a station wagon and a tall MPV crossover vehicle similar to the Mercedes-Benz GST or R-Class.

Depending on which plan goes through, and how many existing components from Volkswagen, and/or components from Maserati and/or Audi end up in the C1, will directly affect its price point. Price estimates place the vehicle at under E35,000 ($42,000 USD) in base form.

If it arrives at something close to this price, well designed and fully equipped with a V8 engine connecting through to a rear-wheel drive layout, the C1 may stir up some interest among premium buyers. Will BMW and Mercedes fans immediately accept a VW on par with their luxury brand? Not too likely. But if Volkswagen can hold out long enough, it just might turn its peoples car into a luxury nameplate and in so doing, parasitically pull most of Audis customers away from a brand the automaker has built up for decades, crushing any hope of Audi overtaking the premium big boys. It might also manage to continue VWs downward spiral in third party quality and dependability tests.

In the end, instead of quibbling over the C1 and next-generation Phaeton, Volkswagen may want to think long and hard about taking a page out of Toyota and Hondas handbook and concentrate more on quality and reliability than building more luxury cars that people arguably dont want. The money spent on the Phaeton should have made the Audi A8 the best car in the world, the Touareg should have initially worn a four-ringed Audi badge on its grille, and the C1 should never happen.

Volkswagen should instead make the Mk V Golf, the New Beetle, Jetta and Passat more reliable, so that new VW customers sold on the brands top-tier perceived quality buy a second car instead VW instead of getting turned off by a bad ownership experience.