Volkswagen to Stop Selling Phaeton in U.S. in 2006

Nov. 14, 2005; Bloomberg reported that Volkswagen AG, Europe's biggest carmaker, will stop selling the $66,700 Phaeton sedan in the U.S. next year after failing to compete with luxury models from BMW and DaimlerChrysler AG's Mercedes-Benz.

Volkswagen will pull the Phaeton out of the world's largest market, where it never met sales targets, by September 2006, said Hans-Gerd Bode, a spokesman at the Wolfsburg, Germany-based automaker. The model's 10-month U.S. sales totaled 686 cars. The goal was to sell 10,000 Phaetons a year in the U.S. by 2004.

``They are simply not willing to spend additional money on this car in the U.S.,'' said Patrick Juchemich, an analyst with Sal Oppenheim in Frankfurt who has a ``buy'' recommendation on Volkswagen shares. ``It would have required a huge marketing offensive.''

Chief Executive Bernd Pischetsrieder is trying to return Volkswagen to profit in the U.S. amid sales that declined 11 percent in the first 10 months of 2005 even after the introduction of new Jetta and Passat cars. Former Chief Executive Ferdinand Piech, now the chairman of Volkswagen's supervisory board, created the Phaeton as part of his effort to take the Volkswagen brand into the luxury market.

The carmaker offers an 8-cylinder Phaeton for $66,700 and a 12-cylinder model for $96,600, according to the company's U.S. Web site. That compares with Mercedes-Benz's competing S-Class, which starts at $65,675 in the U.S., Bayerische Motoren Werke AG's 7-Series at $71,800 and Volkswagen's Audi division's A8 at $68,850, according to the carmakers' Web sites.

`Inferior'

``At that price, the Volkswagen Phaeton, well built as it is, can only be described as an inferior product,'' said Stephen Pope, head an analyst with Cantor Fitzgerald in London with a ``buy'' recommendation on Volkswagen. ``The U.S. is the most dynamic consumer market in the world, and if it won't work there, it won't work anywhere. They should just stop it completely.''

Shares of Volkswagen fell 38 cents, or 0.8 percent, to 45.25 euros. The stock is up 36 percent this year, valuing the carmaker at 18 billion euros ($21 billion).

Final assembly of the Phaeton, named after the son of the mythological Greek god Helios, is done at a Dresden, Germany, factory built of glass that has become a tourist attraction in the city. The car's sales in Germany rose 24 percent in the nine months through September to 2,426 cars, according the country's motor vehicle registration office.

`Pipe Dream' Target

Volkswagen in 2002 targeted worldwide sales of the Phaeton at 20,000 cars by last year, a goal Pischetsrieder in November 2004 called a ``pipe dream.'' The U.S. was supposed to account for about half of the figure.

The company is exiting the large-sedan class in the U.S. to ``focus on increasing sales of its key'' models as a result of discussions with U.S. dealers, Volkswagen said today.

``The sales are not as successful as they theoretically could have been,'' Bode said in a phone interview. ``We need to concentrate all our efforts on the turnaround.''

Volkswagen's U.S. business had a 907 million-euro loss in 2004, and the loss in the first nine months of 2005 widened to 818 million euros from 614 million euros a year earlier. Companywide 10-month sales in the country fell to 398,457 vehicles.

A revamped Passat mid-sized car went on sale in the U.S. in August and a new version of the Jetta compact car reached the market in March.

Chief Financial Officer Hans Dieter Poetsch said Nov. 3 the carmaker may lose even more money in the U.S. this year than last. The carmaker has said it doesn't expect to turn a profit in North America until 2007 at the earliest.