Volkswagen Pins Revival Hopes on New Golf

Volkswagen AG, Europe's largest carmaker, revealed its ambitious sales targets for the latest incarnation of its popular Golf hatchback range on Monday, outlining the company’s plan to sell 135,000 fifth-generation Golfs in 2003 following the car’s launch in October.

VW also forecasts selling more than 600,000 units in 2004 in an attempt to revive the fortunes of the ageing product range and reclaim the model’s position as the best-selling car in Europe.

Volkswagen’s Chief Executive Bernd Pischetsrieder, the man who has pledged rigid cost cuts to battle falling sales since taking the helm last year, said the newest Golf was “technically and visually the biggest step forward” since its first launch in 1974.

More than just popularity at stake

It’s clear that the car manufacturer is hoping that the new model will do more than just replace its usurpers as Europe’s hottest hatchback and must also hope that its confidence is not misplaced.

“The Golf has set standards. Every Golf generation is and has been a trendsetter. It carries the attributes of dynamic travel, security and a timeless aesthetic,” said Pischetsrieder (picture) among the smoke and glittering lights of the unveiling ceremony.

The long-awaited new Golf will go on sale in October after being shown at the Frankfurt car show next month. The latest model, criticized by some for being ‘bland’, is expected to have a peak volume of 2.4 million units compared with 1.8 million units of its predecessor. Considering the effect the car has had on the financial health of VW over its lifetime, much is riding on the new car’s ability to attract customers.

Integral to VW success

The Golf generates about 15 percent of group sales and profits, and analysts view sales of the new model as a crucial test as to whether VW can regain the lead in a sector it once ruled. In its heyday, the Golf sold about one million units a year, with total sales since its birth topping an estimated 22 million cars.

"Naturally the Golf is generating a lot of hope for VW," said Jürgen Pieper, analyst at Bankhaus Metzler, in an interview with the Financial Times Deutschland.

With ever more efficient production techniques in place, VW expects to reduce production costs of the new Golf by at least 10 percent. Analysts say that this should boost its profit margin to at least 5 percent compared to the group average of 4 percent.

However, competition in the sector once dominated by the Golf is fierce. VW can no longer rely solely on the car’s reputation as Europe’s best selling-car to unload units. That mantle was passed to the rival Peugeot’s 206 model in 2001. Since then, the popularity of the Golf has waned and the subsequent effect on its maker has been predictably detrimental.

Sales down in first half of 2003

In the first six months of 2003, sales of the Golf have fallen 18 percent in Western Europe, the car’s largest market, according to figures provided by Automotive News Europe. The effect of that decrease contributed to sales in Western European decreasing by 4.8 per cent with sales of all Volkswagen brands dropping 7.5 per cent overall.

If things weren’t bad enough, the falling market share of the formerly dependable Golf and its sedan (saloon) sister the Passat combined with the negative impact of the strong euro and the depressed state of the global auto market towards the middle of this year to drive second-quarter profits down by a whopping 50 percent.

Model variations to follow

In a bid to cover all eventualities in such a fickle market, the launch of the new Golf is expected to be followed by a number of new designs from VW which could pick up the slack if the company’s estimates are overly optimistic.

Analysts expect the company to introduce more variations on the basic design, such as a sport-utility vehicle and a roadster. New versions of the Skoda Octavia and Seat Leon, based on the Golf, are also expected to follow.