Columns
First In - Is arrogance running rampant at Volkswagen?
By by: Jamie Vondruska
Jan 15, 2004, 11:42

In a move likely to draw some raised eyebrows, Volkswagen of America has raised the price of the W12 Phaeton. Originally Volkswagen offered a "Premiere Edition Phaeton W12" with an MSRP of $84,890 leading most of the press and general public to assume the price of the W12 model would be closer to $85,000. At $85,000 the value proposition of a 12-cylinder luxury car ($40,000 cheaper than some of the competition) could almost be rationalized. Volkswagen of America announced yesterday that the "real" price of the W12 would be nearly $10,000 more at $94,600. Is arrogance starting to run rampant at Volkswagen?

While the Phaeton W12 is still the least expensive and most accessible 12-cylinder luxury car on the market, Volkswagen has its work cut out trying to convince the U.S. buying public that a $95,000 Volkswagen is worth the asking price. Sales of the 8-cylinder model have been better than expected so far (over 175 units in December) but Volkswagen is already having a hell of time moving the 12-cylinder model priced at the current $85,000. We don't expect sales of the 12-cylinder model to be any better with the new price increase and given that the W12 will now largely be order only, it may be safe to say Volkswagen doesn't either. This is a shame since the 12-cylinder could be a major differentiator for VW. Imagine offering a 12-cylinder luxury car with more equipment at a price point that major competitors are selling their 8-cylinder models for.

I don't want to sell the Phaeton W12 short as it does offer a lot for the money compared to the competition on the market. The BMW 7-series 12-cylinder is priced at $119,195 and the Mercedes S-class 12-cylinder is priced at $125,820 both with less standard equipment. The W12 is silky smooth, sweet sounding and moves the vault-like Phaeton rather quickly. In a comparison test done by the German magazine Auto Motor und Sport, the W12 Phaeton even beat the 12-cylinder S-class and 7-series giving tribute to the sincerity of VW's entry. There is no doubt that Volkswagen put a tremendous effort into the Phaeton and it shows in the product. That alone however won't sell this car - what drives sales in this segment is the brand and exclusivity. The Phaeton can certainly offer exclusivity as it will be a very rare car on the streets, however it does not have the brand cache necessary to draw this very high level of customer into show rooms. Building a luxury brand takes time and is not something that can simply be created over night - it must be earned, often the hard way.

If Volkswagen is serious about a long-term future as a premium player and the success of the Phaeton in the long run they will need to subsidize sales and offer very aggressive lease programs on the Phaeton much as Lexus did when they entered the market in the 1980's. They will also need to back it up with tremendous top-shelf customer service that goes above and beyond, something Volkswagen dealers (with a few notable exceptions) haven't been able to demonstrate thus far. If that means little to no profit on the first generation of the car, then that is the sacrifice necessary to get people into a vehicle like this and begin building a luxury brand reputation. Customers need to see a BIG value proposition, something that sets this segment on its ear to convince luxury customers that maybe this is worth the risk. The Phaeton is an incredible effort by Volkswagen, but Volkswagen can't let that arrogance permeate the long-term goals for the brand. Sacrifices today may help pay dividends later in a properly established luxury brand.

Next column we'll talk to an actual Phaeton customer, what made that person consider a Phaeton, what the buying and delivery process was like, what the reaction from friends and family has been and how they like the car so far. We'll also be checking in long-term at regular intervals to see how things are going as well.

Feel free to click on the link to our discussion forums below to let us know your thoughts as well.

Till next time happy motoring.

- jamie

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