Speaking of halving profits, a strong euro and weak demand for its cars and new SUV almost chopped profits in half during 2003. Volkswagen's pre-special items (such as the VW Phaeton and Bentley) operating profit dropped 47.7 percent to 2.491 billion euros (USD$3.18 billion) last year, but that's not the whole of it. After factoring in soured investment write-offs, profits were down a total of 62.6 percent below last year's figures. Still, VW's profits were better than most analysts had expected.
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| A strong euro and weak demand for its cars and new SUV almost chopped VW's profits in half during 2003. But VW's real problems run deeper than that. Many analysts feel that the automaker should have spent more money fixing its reliability problems, or at the very least perfecting the Audi A8 (shown) rather than building the segment rival Phaeton. (Photo: Shawn Pisio, Canadian Auto Press) |
Making matters even worse is BMW, who unlike Volkswagen will no doubt succeed as it enters Golf territory with its much anticipated 1-Series. The new model, expected to be priced close to a similarly featured Volkswagen Golf, will offer rear-wheel drive performance, stronger expected reliability (BMW stands at a much better 13 out of 37 automakers in the same J. D. Powers and Associates 2003 VDS) and greater desirability due to the roundel badge on the hood and rear trunklid.
Additional competition from Ford will arrive around the same time, with the next-generation Focus. GM's European division will be giving the Golf a run for its money with a new Astra, while Mazda's new 3 could steel significant sales from the Golf's traditional sport import buyer on both sides of the Atlantic.
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| Although the Phaeton will continue until the end of its cycle, about 4 to 5 years, most analysts feel there is little doubt that it will be phased out with no updated model returning after that time. (Photo: Volkswagen Canada) |
Pischetsrieder is now under intense pressure to kybosh the costly, underperforming Phaeton, money that at the very least should have been invested to improve the already poor selling new-generation Audi A8 L. Audi sells far fewer flagship models (2,311 in U.S. during 2003) than any of its direct rivals, excepting Infiniti (Q45) and Volkswagen (Phaeton) of course. In comparison Mercedes-Benz sold 15,981 S-Class models in 2003, Lexus delivered 15,583 LS 430s, while BMW sold 14,410 7-Series models.
No doubt the Phaeton will continue for at least the duration of its life expectancy (4 to 5 years), but analysts are predicting the model will be phased out before 2009 and never return, allowing Volkswagen to refocus its energies toward less expensive core products.