VW is reported to be looking at stripping costs out of the long overdue second-generation flagship Phaeton, and will delay its launch.
IHS perspective | |
Significance | The VW passenger car brand looks like it is starting to get aggressive in its cost-cutting drive with the news that it is looking to delay the introduction of the second-generation Phaeton in order to review its costs, according to a Bloomberg report. |
Implications | The range flagship Phaeton has always been a comparatively slow seller since its launch in 2002, competing as it does in the limousine segment against established players such as the BMW 7-Series and Mercedes-Benz S-Class which have the brand power that is expected in this segment. |
Outlook | The Phaeton was a pet project of recently deposed VW supervisory board chairman Ferdinand Piëch and was meant to be a halo model for the entire brand. However, it is best described as a vanity project as there has never really been a solid commercial rationale behind the model and if VW really wants to show the investment community it is serious about cost-cutting it might consider cancelling the project altogether. |
The Volkswagen (VW) passenger car brand is looking at the possibility of delaying the introduction of the second-generation Phaeton limousine. according to Bloomberg. This is despite the fact that the current cars is long overdue for replacement, having first been launched onto the market in 2002. As part of the brand's current cost-cutting drive, VW is reviewing the second-generation Phaeton's introduction and seeing where cost can be stripped out of the production process and material purchasing. This is despite the fact that the second generation model has already been signed off and is ready for production according to sources close to the project cited by the news agency. The model's entry price in its domestic market is currently EUR89,650, around four times the figures of the next largest sedan model in the VW range, the Passat, and sales have slowed to a trickle as the model is now hopelessly outclassed by the likes of the Mercedes-Benz S-Class, while BMW will show the latest 7-Series at next month's Frankfurt Motor Show, which will put further distance between the current Phaeton and the segment leaders in terms of comfort, sophistication, features and image, all vital elements to the success of vehicles in the premium large sedan/limousine market.
The Phaeton was a pet project for the former VW supervisory board chairman Ferdinand Piëch, who was ousted in a boardroom battle with executive board chairman Martin Winterkorn in April. It had been likened to being a retirement present for Piëch as the first-generation Phaeton coincided with the VW patriarch's move upstairs from being executive board chairman to supervisory board chairman. Piëch wanted a car that would challenge the S-Class and 7-Series, despite VW having no history of building of a high-end, premium sedan/limousine and despite the wider group already being present in the market with the Audi A8. Sales of the Phaeton have never been particularly strong; it sold 10,000 units in its peak year in 2011. This compares to over 100,000 units that the S-Class is forecast to sell in 2015, with Phaeton sales forecast to fall to 4,000 units this year.
Outlook and implications
In truth the Phaeton is something of a legacy of Ferdinand Piëch's all-powerful emperor-like grip on the VW Group, which only ended at the beginning of this year when he overstretched himself in his fight with executive board chief Martin Winterkorn. There was never a solid commercial rationale behind the development and the launch of the vehicle, other than its ability to share a platform. powertrain and electronic modules with other high-end VW Group products like the A8, Bentley Continental and Bentley Flying Spur. VW had never had a history of selling a high-end premium sedan and by definition the model was something of an answer to a question no one ever asked: namely, who actually wanted a VW limousine? The answer is not that many buyers, with the target audience of the Phaeton mostly wanting a vehicle from established premium players like BMW and Mercedes-Benz. Now that Piëch is out of the equation it is perhaps odd than the firm is going through with the second generation of the car, albeit that it is looking to strip costs out of the model as part of its cost-cutting drive. It is probably simply too late to cancel the model altogether, with all the design and development work having been done, and it is therefore likely to see the light of day in some form. However, the fact that the current car has had one of the longest model cycles in the automotive industry having been launched 13 years ago would suggest a deal of apathy, prevarication and uncertainty about the project at the very highest level of the company. If VW really wanted to show how serious it is about lowering costs at the brand from a symbolic point of view it would send a powerful message to cancel the Phaeton altogether. The brand is looking to raise its operating margin to a target of 6% after a somewhat dismal performance of 2,4% last year and the profitability of the main brand is currently VW's main corporate concern along with growing signs of a slowdown on China (see Germany: 16 March 2015: VW identifies half its EUR5-bil. cost-savings target).