VW's planned Paris flagship store signals big French ambitions
Photo credit: Bloomberg
PARIS -- Volkswagen Group's plan to open a store on Paris' Champs-Elysees will be great for the brand's exposure in France but do little to boost its volumes, industry watchers believe.
"Having a showroom on the world's most famous avenue will have zero impact on sales," IHS Automotive analyst Carlos Da Silva said.
VW sees things differently as the store is part of its big plans for France. Europe's largest automaker wants to nearly double annual sales in the country to 400,000 vehicles by 2018, Maire-Christine Caubet, head of VW Group in France, told Automotive News Europe earlier this year.
Da Silva says the store will send a message to France's Renault and PSA/Peugeot-Citroen. "Symbolically, this certainly clearly shows VW's intentions in the French market. It becoming a bit more aggressive and gaining market share and, of course, that means stealing from the local leaders, i.e. the French brands."
VW's Champs-Elysees showroom, which is due to open as early as next year, will be across the street from Renault's store and not far from PSA's dealership on the exclusive avenue.
Sales fall, share rises
How good are things for VW Group in France? Through September the automaker, which includes the VW, Skoda and Seat volume brands as well as the Audi, Bentley and Porsche premium marques, gained market share despite a decline in sales. After nine months, VW Group's volume was down 5 percent to 208,114 light vehicles but its market share rose to 12.11 percent from 11.05 percent during the same period last year, according to French auto group CCFA.
By comparison French light vehicle sales at PSA, which includes the Peugeot and Citroen brands, fell 17 percent to 532,877 in the first nine months and its share slipped to 31.02 percent from 32.65 percent. Demand in France for cars from Renault Group, which includes the Renault and Dacia brands, declined 17 percent to 423,213, pushing the automaker's market share down to 24.36 percent from 25.67 percent after nine months in 2011.
A VW spokesman said that the automaker would continue to expand its customer base in France by maintaining its offering of cars for a better price-per-quality ratio compared with the competition.
PSA and Renault declined to comment.
VW Group offers a better price-per-quality ratio partly because it can make cars for less money than its competitors, said Morgan Stanley analyst Stuart Pearson.
By using its new MQB platform to underpin the seventh-generation VW Golf, which debuted at the Paris auto show last month, the company will save an estimated 2,000 euros per unit compared with the previous Golf platform, Pearson said. The reason is the massive volumes planned for MQB. By 2018, VW plan to use MQB to underpin 6 million vehicles from Audi, VW, Skoda and Seat brands. It is estimated that MQB could provide VW with a cumulative cost savings of 14 billion euros by 2019.
"The savings will go into three possible areas: pricing, content, or margins. It is up to [Volkswagen] to find the balance of the three," Pearson says. "If that value can find its way back into the car in terms of pricing or content, then you can see a compelling consumer rationale for choosing a VW vehicle."
Da Silva said French customers are also becoming less loyal to national brands. "VW is a real threat for French OEMs: it's a renowned brand with very popular models icons, such as the Golf and Polo," he said. "So VW represents an easy alternative to the French leaders. Knowing that the French customer is becoming less and less chauvinist and nationalist, this certainly is good news for VW."
VW is also able to offer customers better financing deals than PSA and Renault in France. VW customers can pay as little as 1.90 percent interest on a 10,000 euro loan for a VW car. At Peugeot the comparable rate is 6.95 percent and Renault charges 5.90 percent.
Da Silva said such low interest rates can be a game changer. "But, buying a car is not a purely rational thing where customers add and subtract the pros and cons," he added. "Nevertheless, offering the best financing deals is definitely a plus for a brand that wants to gain market share."
Morgan Stanley's Pearson questions whether the quest for market share growth and higher volumes will hurt VW's profits in France.
"We are not sure it is a wise decision to target market share, especially in a market that is expected to be rather stagnant in the long term," Pearson said. "But if [the Volkswagen Group] chooses to do it, then we think [growing sales by 40 percent over four years] is not necessarily desirable. It all depends on the price and how it is achieved."
Pricing cuts and discounts, for example, could mean that margins would be smaller in the shorter term in France.
"Taking market share at the expense of pricing risks backfiring on you. For example, you may risk a price war, especially with those [automakers] with under-utilized capacity in France," Pearson said. "They can't especially afford to lose market share because they have factories to keep busy. It could result in a price war in France if they push too hard."
You can reach Bruce Gain at firstname.lastname@example.org.