Volkswagen wants to develop a large-sized affordable sedan that will compete with Renault’s Logan in emerging markets.
VW code-named the program the 3-K Project because its looking for a manufacturing cost of E3,000 per car. That would let it compete with the Logan on retail price.
If the VW group board approves the program, VW could launch the 3-K in China by 2008.
The car would be “a sedan with four doors and a large trunk, slightly bigger than the Logan,” a former VW executive said. Other potential markets are Brazil, India, Malaysia and Mexico.
“The trend in emerging markets for basic transportation is for sedan variants of small cars, not for hatchback minicars like in Europe,” the source said.
Automakers increasingly recognize that new motorists in emerging markets prefer simple but roomier cars with four doors and a big trunk for luggage rather than sophisticated, feature-laden minicars.
The trend started in Latin America and China and has since spread to other emerging markets, including central and eastern Europe.
“Offering basic transportation is the right move to enlarge your customer base in emerging markets,” said Arndt Ellinghorst, head of European automotive research at Dresdner Kleinwort Wasserstein in Frankfurt.
He sees the 3-K Project as a better move for VW in developing markets than more expensive models such as the Polo and Golf.
But Ellinghorst also warns that basic transportation programs are a necessary entry cost that will generate only low margins.
In the medium term, they may generate 10 percent to 15 percent of Renault revenue but only 3 percent of its profit, Ellinghorst says.
The plan “makes a lot of sense for VW,” said Philippe Houchois, head of European auto research at JP Morgan in London. He thinks the 3-K Project could turn China into an export base for VW.
The 3-K Project is a return to VW’s low-cost roots after its controversial reach for luxury status with projects such as the Phaeton and Touareg. The 3-K development team was created last year after VW group CEO Bernd Pischetsrieder vowed to reclaim VW’s low-end expertise.
As an interim response, in April VW started importing the Brazilian-built Fox to replace the Lupo minicar in Europe.
But the 3-K Project car would be both larger and less expensive to build than the Fox. Originally designed only for South American markets, the Fox is said to have a production cost of around E3,500. It retails in western Europe at prices starting at E8,950.
To cut 3-K production costs, VW plans to extensively carry over existing parts and modules.
The 3-K would have a basic common structure and suspension systems, with regional variations on powertrain and body styles to suit specific markets.
In western Europe, the retail list price is normally 2.5 times the production cost. This would give the 3-K a hypothetical E7,500 list price – the same as the Logan’s price in western Europe. Sales began in France last week.
In eastern Europe, Renault launched the Logan under its Dacia brand in September 2004 starting at E5,700 and averaging E7,100. It planned to introduce a more basic version this month at about E5,500 – but has delayed that because of continued demand for more expensive versions.
– Henning Krogh contributed