Volkswagen is reshaping the lower end of its product line to recoup lost sales.
VW will advance by 12 months the introduction of an all-new Polo small car to 2007, sources say. The new model also could have more variants including a smaller and lighter version of the Concept R roadster and a high-roof minivan similar to the Renault Modus.
VW also will shift its strategy in the minicar segment. It will sell the new Fox, which replaces its slow-selling Lupo minicar, only as a two-door version to reduce competition with the Polo.
The Fox will be priced up to E2,000 less than the current E10,150 Lupo it replaces, despite being 310mm longer.
By introducing the Fox in Europe early next year as a sub-E10,000 model, VW is responding to demands from its works council and dealers in Germany.
They want a budget-priced car to compete with Asian imports and the top sellers in the segment: the Fiat Panda and Citroen C2.
Christoph Stürmer, analyst at Global Insight in Frankfurt, said the Fox is VW's answer to new small cars that Toyota and PSA/Peugeot-Citroen will build in the Czech Republic and Kia will build in Slovakia.
"VW needed a car that is cheaper to produce in higher volumes than the Lupo," said Stürmer. "The company will try to put a significant price distance between the Fox and the Polo."
Critics complain that the Lupo was priced too high compared with its competitors. A Panda starts at E8,590.
The Lupo is built at VW's plant in Brussels, Belgium. The Fox is built at VW's Sao Jose dos Pinhais plant in Parana, Brazil. It is sold in Brazil in two- and four-four versions.
"We badly need an entry-level model like the Fox," said a VW dealer in France.
"Customers' needs have changed," said Eckart Schmidt, sales manager of a VW dealership in Neckarsulm, Germany. "People nowadays want affordable transport to get them from A to B."
VW sold just 43,188 Lupos in western Europe last year. In 1999, Lupo volume was 109,062, according to JATO figures.
Last year VW sold 350,750 Polos in western Europe. Polo sales in western Europe stablized following the introduction of a new model in late 2001 and new variants including the Polo Fun last year, but sales dropped in western Europe and in Germany, VW's home market, in the first half of this year.
In Germany, Polo sales dropped to 43,956 units in the first six months, compared 59,630 units during the same period last year, according to JATO.
In western Europe Polo sales were down in the first half to an estimated 149,634 units from 186,628 in last year's first half.
Dealers complain that the latest Polo, introduced in late 2001, grew too much in size and in price.
Dealers and analysts in Germany have criticized VW's policy of charging premium prices for models such as the Golf and Polo. Dealers say new-car buyers are choosing cheaper cars because of Germany's ailing economy.
VW was forced to offer free air conditioning on the new Golf just after its launch last November. Dealers complained then that the new Golf was priced too high.
"People's incomes and jobs are under pressure and they look at our cars and see they are not the cheapest," said Stefan Fröhlich, a VW salesman at Autohaus Jacob Fleischhauer in Cologne.
"Other European carmakers and Asian carmakers offer much heftier incentives than VW on the Polo," said an Italian dealer.
A facelifted Polo is expected to be shown at the Geneva auto show next March.
Some analysts believe selling the Fox under the VW brand will be a mistake.
Said Jochen Siebert, Europe vice president of CSM automotive forecasters: "It would be better to brand the Fox as a Skoda, which is VW Group's budget brand."