Currently reading: Volkswagen to pursue budget range
Plans for a budget range 'are progressing' says head of VW R&D

Volkswagen will pursue a new budget range to help bolster its sales potential in emerging markets.

The firm's new head of R&D Hans-Jakob Neusser reaffirmed the plans In one of his first interviews since succeeding Ulrich Hackenberg at the top of VW’s engineering ranks. Neusser confirmed to Autocar that plans are progressing on a range of sparsely equipped models with contemporary engineering, in the mould of Renault’s Dacia line-up.

“Our budget car plans are progressing,” said Neusser. “We haven’t made any firm commitments — not because we’re slow but because we are doing our homework.”

Neusser stopped short of confirming that the new range would be based on the Santana, which is built in China under a joint-venture agreement with SAIC. But he did say a partner is being sought. “If we do it, we will do it with a joint-venture partner,” he said.

The entry-level range is not the only area of concern for VW’s new R&D chief. In the first official acknowledgement that the range-topping Phaeton would be succeeded, Neusser said that engineering work on a four-door replacement for it was at an advanced stage.

“The Phaeton is a very important car for VW. We are working intensively on a new model. It will boast all the qualities of today’s model but with new developments that will make it even more competitive,” he said.

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RCT V 7 October 2013

VW is to search for the

VW is to search for the automotive industry’s “Holy Grail”, the production of a financially viable “budget range” of vehicles. It is reported that the Santana vehicle could be the basis of such a budget range of vehicles. The Santana vehicle ceased production in Europe in 1988, but since 1982 has been produced in China.

However, some have suggested that the VW Group’s Skoda brand, and Seat brand, (should) both fullfill this function, as producers/providers of “budget” vehicles.

Both Skoda vehicles, and Seat vehicles, may be (a little) less expensive that their equivalent VW models. However, this price differential is relative.

In some parts of the global market for cars, even Skoda, and Seat, would be regarded as sophisticated models - the products of a highly automated, skilled, and efficient “western” industrial infrastructure. Further, in its established “western” markets, the VW Group would not want to jeopardise the fine reputation for build quality and reliability that it has now established and nurtured in resuscitating both Skoda and Seat.

Within various market segments, the three competing models from VW/Skoda/Seat are even produced on the same production line. They share the same common mechanical components and sub-assemblies; wiring looms; glass; and seat bases; etc. These different yet closely “related” VW/Skoda/Seat models within a single market segment, certainly all cost the same to produce.

The production line does not speed up, and the assembly workers pay less attention, just because a batch of Skoda/Seat cars are sent down the production line!

VW will produce as many VW variants as it thinks the market can sustain, and which will produce the appropriate financial return that is required. As the equivalent Skoda/Seat cars are sold at (slightly) lower prices, they will not produce quite the same amount of revenue for the Group, as the VW models.

However - significantly - the Skoda/Seat cars help amortise the capital investment needed to produce the “full price” VW variant. The Skoda/Seat cars contribute to greater efficiencies and greater volumes/numbers in the production and purchase of sub-assemblies, and vehicles themselves.

Importantly, whilst far from being “budget brands”, the Skoda/Seat cars offer a product to the consumer at a different (lower) “price point”, at which it might be considered inappropriate for the VW brand itself to compete.

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It is known that VW’s interest in, and part ownership of Suzuki, was because VW wanted - not to learn how to make small cars, but - to learn how to make small cars PROFITABLY !!

Producing vehicles in a low-wage economy, may be one contributing factor to producing vehicles with consequently lower “in-puts” and therefore at a greater profit. But, if more (cheap) labour is used in the manufacturing process - instead of the established level of automation than might be associated with manufacturing in developed “western” economies - consistently high quality control (and subsequent reliability), can become problematic. However, this is something that Suzuki does seem to have resolved, with many of its (small) vehicles produced in different SE Asian countries with “developing” economies - such as India.

It is possible to reduce the (technical) specification of a “budget” vehicle compared to those developed for “western” markets - to make the entry or “price leader” variant more affordable/accessible to customers. Omitting to fit as STANDARD such items as ABS, traction control; brake distribution; power steering; automated headlights/wipers/mirrors, may all (marginally) reduce the material “in-puts” of producing a given model. However, the VW Santana 3000 was also the first in the Chinese developed Santana series to be available with OPTIONAL ABS brakes with electronic brake distribution, electronic differential system, a multi function display system, and a sunroof designed by the German Webasto company.

To be successfully accepted by its intended customers, a low cost, low price, budget vehicle should not look - or importantly, should not be perceived - as though it was specifically designed and manufactured for a developing economy/market. The intended customers of such vehicles have the same aspirations and ambitions as customers elsewhere. Such potential customers would probably take offence if they were considered as “only” being able to purchase a budget vehicle!

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It is possible to draw a direct comparison from within the mobile telephone market. Suppliers had intended to further exploit Generation ONE and TWO technology and infrastructure by (re-)utilising it in “developing markets” . . . as the G3 and G4 technology was “rolled-out” in more established economies. However, those “developing markets” were not satisfied with what they regarded as “obsolete” technology.

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As previously Ford, Renault/Dacia, and now BMW, VW will have also realised with the new three cylinder engine developed for, and used in, the Up, Citigo, and Mii, that it is less expensive - by definition - to assemble a engine with 25% less reciprocating parts than it is to assemble an engine with four cylinders, irrespective of the size/swept-volume of the engines.

LP in Brighton 30 September 2013

Article didn't mention "Budget Brand"

In fairness, the article referred to a budget range, so it's quite possible that VW intends to market these more affordable cars under its own name. This probably makes sense in China which seems to want existing European brands, but probably wants them at a reasonable price.
On the subject of Skoda, it's a pity that the company hasn't remained true to its budget roots, but then again survival these days is all about profitability - and if the company can market its cars at higher prices, then that surely makes good business sense.

MikeSpencer 30 September 2013

LP in Brighton wrote: In

LP in Brighton wrote:

In fairness, the article referred to a budget range, so it's quite possible that VW intends to market these more affordable cars under its own name.

You are quite correct, it clearly states new VW models and not VAG brands, apologies for the oversight.

MikeSpencer 29 September 2013

VW Group worried by budget brands?

Creating a completely new brand to directly compete with the likes of Dacia suggests to me VW feel threatened by them. Surely better to manage their current portfolio of brands and react to changes in the marketplace than just create another one. At this rate they'll end up like British Leyland in the 70's, and we all know what happened to them... Plus, cheaper cars mean lower margins and less profit, or am I missing something? It seemed even more curious when linked to the news the next-gen VW Phaeton - a car that's certainly far from budget - is both in the pipeline and 'a very important car for VW'. If so, where does that leave the Audi A8?