Volkswagen CEO Pischetsrieder Says Phaeton Styling was a Mistake

Was It Just Styling or Was the Phaeton a Mistake Altogether?

One of the nicest new entries in the luxury car segment this year is Volkswagens new Phaeton. Of course, with a base price of $64,600 that stretches out to $79,100, not including much more expensive $79,900 W12 model that pushes $95K when fully loaded, there havent been a lot of takers.

To the common layperson VWs lack of success in the high-flying luxo market doesnt come as a surprise. Rather, most consumers who are unaware that the German economy car brand is now purveying luxury are aghast that its first entry is priced almost $10,000 more than the equivalent Lexus LS 430. Add up the Phaetons standard features and it becomes more apparent why its price is so high, but that doesnt help the car get noticed.

With its nondescript styling in mind, British monthly magazine CAR reported in its August issue that Volkswagen AG Chief Executive Bernd Pischetsrieder believes his companys previous management made a mistake when it designed the car as a sedan.

"The Phaeton fails to sell because it is not distinctive enough," stated Pischetsrieder in his interview with the magazine, continuing that the following generation may in fact be a combination estate car and coupe.

"It will definitely not be a normal saloon," added Pischetsrieder, making mention that originally in concept form the designers and engineers had conceived it to include a much more sloping rear end design, as in the original Concept D. "But the marketing people said the luxury buyers would insist on a saloon. That was a mistake."

Just how much of a mistake was it? If you to go by Canadian sales for the month of June 2004 alone it would look like a blunder of major proportions, being that only 2 were sold across the country. In comparison 96 BMW 7-Series were sold in June. The Phaeton reached what looks to be its "critical mass" in Canada during the month of April, when it achieved a total of 10 units sold. But on average, VW has only managed to sell about 6 cars per month during the first six months of the year for a total of 35 above the 49th parallel.

In the U.S. sales are no better, at least on a per capita basis. But according to Len Hunt, speaking to the media during the March 1st announcement of his promotion to Vice President in charge of the Volkswagen brand in the United States and Canada, the Phaeton is beginning to find its audience. Where buyers are more brand-conscious, such as on each coast, the full-size VW hasnt done that well, but the VP said in the middle of the country, where consumers size up the car on its own merits rather than just the badge, its doing better.

"Youve got to take a long-term perspective. I think the Phaeton is a wonderful vehicle technologically." Hunt added, "An entry in the high-luxury segment needs a fair amount of time. Its the most conservative part of the market where people take the longest to accept a new car." He continued, "So far Phaeton sales are running about 150 units per month, which is quite adequate."

Adequate for a niche automaker such as Britains boutique sports car builder TVR or maybe Morgan, but for a mainstream Volkswagen product, being produced in a $186 million dedicated "transparent" Dresden factory where workers wear white gloves to protect panels and components as they assemble Volkswagens crème de la crème sedan, a car which industry analysts wager cost the German brand between $350 and $500 million to develop, 150 units per month doesnt quite cut it.

For the ex-BMW boss to come clean with the Phaetons critics, at least with regards to the cars conservative styling and the need for it to stand out more in the luxury sedan crowd is saying something indeed. Pischetsrieder has been slow to criticize VWs past leader Ferdinand Piëch, the man who pulled him up from CEO oblivion. When leading BMW, Pischetsrieder was dubbed "Man of the Year" for the creative coup of luring Rover Group away from the clutches of Honda, and simultaneously acquiring Land Rover and its highly favored Range Rover brand. Years later, when Rover was losing money hand over fist and Land Rovers had hardly improved in sales volume since its acquisition the move hadnt looked quite as spectacular, made look even more dismal when BMWs X5 outsold the entire Land Rover lineup in its first year of production.

Nevertheless Pischetsrieder vehemently defends BMWs acquisition of Rover, insisting "BMW didnt have the patience to solve the Rover problems." He added, "Dr. Piëch called me at home the day after I left BMW and offered me a job."

And the rest is history. After a year and a half of make-work projects within VW due to a non-compete clause, Pischetsrieder went back on top, guiding one of the worlds largest and most influential automakers out of the most significant sales slump it has ever experienced, product quality problems that would have long since destroyed an automaker with less brand loyalty, and questionable brand strategies that parasitically undermine the automakers overall progress.

The Phaeton is a prime example. While intended to steal sales away from BMW, Mercedes-Benz and to some extent Lexus, Audi A8 owners are more likely to buy into the models understated elegance and luxury appointments. It also drives more like an Audi than its rivals, while offering all-wheel drive, and Audi staple. But the Phaeton isnt the only internally parasitical predator. VWs Passat has long hindered A4 sales in North America, by offering a larger A4 with more features for less money. While the W8 model has now been canceled due to slow sales, the 1.8T and 3.0-liter V6 models still compete directly with Audis small car.

In Europe, the problem is exacerbated by the internal competition of Spains Seat and Czechoslovakias Skoda, both sold throughout the EU. Both Skoda (Octavia) and Seat (Toledo) have sold versions of the Jetta (Bora in Europe) with more features and better performance for much less money, to the detriment of VW sales. This same scenario gets played out across almost the entire range, some VW models faring worse than others.

But thats only the entry-level brands. Pischetsrieder has also had to maintain the on-again, off-again Bugatti supercar, plus ultra-premium brands Lamborghini and Bentley, both requiring much financial nurturing by Volkswagen ahead of their new products paying for themselves.

Along with the Phaetons Dresden plant, VW operates 44 factories in 17 countries while employing approximately 330,000 workers globally.

Under certain pressure, Pischetsrieder blamed the same marketing team that fudged the Phaetons design configuration for nearly wiping the very popular Golf GTI model off the roads, a problem he is now rectifying.

Speaking about the car the VW CEO states, "It was too slow, too average. It was a good example of marketing getting it wrong. If it hadnt been for those fans of the old Golf GTI, and their clubs and meetings, the icon would have completely disappeared."

Whether Pischetsrieders recent criticisms of his predecessors business priorities, the person who is also still the current VW supervisory board Chairman, is a sign that he is getting frustrated with the challenges he has been left to face, or if it is a political ploy to let the board members know its not his fault the company is in disarray, VWs new CEO is nevertheless becoming more outspoken about Piëchs legacy.

During an interview with the Financial Times early last month, Pischetsrieder averred that it had been "absolutely the wrong decision" to introduce VWs tiny Polo model in China, another Piëch decision.

Pischetsrieder continued in the same vein during the CAR interview, commenting that "Dr. Piëch possibly emphasized engineering too much, and his predecessor Dr. Hahn possibly emphasized employment too much." He continued, "My goal is very clear. It is to make money."

This goal he made equally concise during a previous interview in March, where the CEO stated, "I would love to be among the top three manufacturers, but not at the expense of profitability."

It will be interesting to see if Pischetsrieder continues his support of the Phaeton project, even through to a second-generation car, or if he, with the boards consent, kills the luxury sedan that most analysts agree should have never been built in the first place. Would the $65K VW sell better if it was styled after a large sport wagon, possibly designed to look more like Audis 2001 Avantissimo Concept? Or would it do better as a 4-door coupe, closer in style to VWs Concept D? Pischetsrieder somehow believes it can be both a coupe and a wagon, and when revised would attract those customers bored with conventional sedans.

Volkswagen board members will have to be convinced that at least more than 6 Phaetons per month can be sold in VW strongholds such as Canada, before loosening the purse strings to invest in an updated model.