VW Clears Internal Hurdles to Approve Budget Car for China

Photo: Flickr/extranoise

Photo: extranoise, Flickr

With its cost issues now sorted out, Volkswagen (VLKAY.PK) has given the green light for a slate of small, affordable cars that could end up costing about 6,000 euros, or $8,300, in the Chinese market. The company was struggling to reach its cost targets for such a car, aimed at emerging markets, but with those targets now in place, the company is able to move forward with the project, Reuters cited Germany’s Manager Magazin as reporting.

Senior executives at VW are expected to approve the budget car in the next few weeks, and the supervisory board is expected to sign off on the project by the summer, Reuters said. China is the biggest market for economy cars, and Volkswagen has reportedly been working for over a year to hit its internal cost targets to move forward with the project.

Heinz-Jakob Neusser, VW’s brand development chief, said at the Geneva Motor Show earlier this month that it was becoming more and more difficult to hit cost goals for the budget car, and noted that it made no sense to approve a vehicle that was not meeting in-house targets. However, Volkswagen is desperately lacking in terms of bottom-floor, no-nonsense vehicles for markets like China or India, where automotive growth is driven by that class of vehicle.

Further, Volkswagen is striving to become the world’s largest automaker by 2018. To do so, it will have to unseat incumbent Toyota, and beat back Detroit-based General Motors — and neither company intends to slow down in the meantime. In terms of volume, it’s nearly essential that Volkswagen have a competitive car in the markets with the strongest growth.

Volkswagen Badge

Outside of the U.S., Volkswagen makes the Polo and the Up! minicar. However, those models cost about $17,900 and $13,736 respectively, which is still about $3,000-$5,000 too much. Volkswagen is also the parent of the Czech Republic’s Skoda Automotive, a budget brand which also operates in both India and China. However, Volkswagen appears to be counting on the reputation behind its VW badge as a sales tool.

Volkswagen delivered 9.7 million cars around the globe last year and outpaced General Motors in China for the first time in nine years with 3.27 million vehicles. However, VW is hoping to bank on a new demographic in the region in the years ahead to keep its growth pace in China on track.