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New VW Passat Will Be Big In China As It Slides In Europe

“VW could sell at least 1.3 million new Passats in a year”

POTSDAM, Germany – Volkswagen’s redesigned new Passat sedan is unlikely to stem the slide in sales in Europe, but success in China will more than make up for this.

Sales of big European sedans like the Passat, Ford Mondeo, Opel-Vauxhall Insignia and Peugeot 508 have suffered because of the popularity of high-riding, roomy, four-wheel-drive SUVs among private buyers, although the core purchasers of mainly company cars like this still remain.

According to Automotive Industry Data (AID), sales of these big-by-European standards sedans have dived this century from 15 per cent of the market in 1997 to five per cent at the end of 2013. SUVs meanwhile surged to win 14.4 per cent market share in 2013 from under two per cent in 1997.

Passat sales might be declining in Europe, but the ones VW does sell are likely to be much more profitable than the old ones because it will be cheaper to build, relying on VW’s latest manufacturing methods which allow it use many parts from the smaller Golf sedan.

Echoing many other European mass car makers, VW board chairman Martin Winterkorn said the new Passat represented a move upmarket, although this might seem to risk cannibalizing sales of its premium subsidiary Audi’s A4, and clash with other models like the BMW 3 Series and Mercedes C-class.

Winterkorn, unveiling the new Passat in this town about 15 miles outside Berlin, said the new Passat represented a new era of mid-class cars which gave more value.

“This is a premium car without the premium price,” Winterkorn said, adding that presumably because of its VW heritage it won’t generate “envy”.

The price of a new Passat is likely to start at around 26,000 euros ($35,350) after taxes when it goes on sale early next year in Europe.

According to AID Editor Peter Schmidt, sales of the new Passat will slip to around 200,000 a year in Western Europe over the next couple of years, compared with 244,000 in 2013 for the old model.

But demand in China will transform the Passat’s outlook.

“Much more significant (than Europe) is demand in China. Just as Americans like cars with boots (trunks), last year VW sold 230,000 Passats and another 190,000 Magotans (Passat with Magotan badge) in China. I wouldn’t be surprised if they do that again. And then there’s Eastern Europe and Russia, and the cheaper version sold in the U.S. VW could sell at least 1.3 million new Passats in a year,” Schmidt said.

VW sold about 1.1 million Passats last year.

VW sells a less sophisticated version of the Passat in the U.S. made at the Tennessee plant, with cheaper suspension and less technology. According to International Strategy and Investment (ISI), VW sold 109,700 Passats in the U.S. last year. VW is struggling in the U.S., and ISI said despite accounting for about 14 per cent of VW’s global revenues, the U.S, Mexico and Canada account for only 2.4 per cent of operating profit.

“We expect VW to lose around 560 million euros ($760 million) in the region this year on an EBIT (earnings before interest and tax) margin of minus 2.0 per cent,” ISI said.

VW said at the launch in Potsdam that the new Passat won’t be available in the U.S., but the new wagon might be.

AID’s Schmidt said he didn’t think VW spent a huge amount of money developing the new Passat because of its policy of using modules and components from one model to make another one from at least one sector above and one below.

“Calling this a stretched Golf is a fair description,” Schmidt said.

Schmidt didn’t see much chance of Passat sales eating into the Audi A4 because it was sufficiently differentiated in terms of price and marketing. Schmidt said about 90 per cent of European buyers of the Passat would be for companies, not private individuals.

The new, Passat which is nearly 190 lbs lighter than the old one, will be available in Europe with a choice of 10 gasoline and diesel engines, plus a plug-in hybrid, ranging from a 1.4 liter, 148 hp gasoline motor to a 2.0 liter 237 hp diesel. The Passat offers an array of new technology including a head-up display, interactive digital instruments, stop-start, LED rear-lights, automatic emergency braking and a gizmo to help drivers park it with an attached trailer. You can opt for technology which allows a degree of computerised control of the car in traffic.

The design of the car’s body, with its emphasis on chrome and detailing, seems to have been concocted with China in mind. News that VW is spending $2.7 billion on two new plants in China won’t be a surprise.

ISI reckons VW made 3.1 million vehicles in China last year and could move to 4.0 million by 2016 and almost 5.0 million by 2020.

“Based on our numbers, the combined earnings contribution from China was 6.8 billion euros ($9.2 billion), 55 per cent of group pre-tax last year,” ISI said.

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