VW's new Passat to get fleet sales boost from euro zone's brighter outlook

The new VW Passat, shown, has a sleeker look than the current car.

Photo credit: Reuters
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POTSDAM, Germany -- Volkswagen’s new Passat is expected to get a sales boost from the return of corporate car buyers to the European market, as companies take advantage of low interest rates and a brightening economic outlook to resume investing in their fleets.

VW unveiled the latest generation of the mid-sized car here on Thursday. The new Passat "introduces technologies and features in the mid-market that are otherwise only available in higher segments," VW CEO Martin Winterkorn said at the unveiling. "The new Passat is going to the Volkswagen brand a powerful push," he said in a statement.

Analysts say sales to businesses -  already the most important customers for mid-size sedans and station wagons in Europe - will become even more crucial as private buyers continue to migrate to crossovers and SUVs.

Nearly 60 percent of all Passats in the main five European markets are delivered to corporate clients, said Benjamin Kibies, industry analyst at fleet market specialist Dataforce. The 2.0-liter diesel Passat wagon "is the quintessential corporate car, so as fleet customers buy more cars, I expect the amount of Passat sales to increase in the major European markets," Kibies said.

Ian Fletcher, an analyst with IHS Automotive, said sales of mid-sized cars in Europe have fallen by more than half over the past 10 years because of the rise of niche models such as SUVs and the pressures on customers to downsize in light of the economic downturn.

Luxury rivals

VW has given the new Passat improved safety technology to help it compete better with premium rivals such as the BMW 3 series and Mercedes C class, and also to fight volume competitors such as the Ford Mondeo, which is also moving upmarket.

The Passat will be VW's first car available with a head-up display. The system projects data such as speed and navigation instructions onto a retractable screen over the steering wheel to keep the driver's focus on the road. Other high-tech safety options include functions that can bring the car autonomously to a halt if the driver falls asleep.

Juergen Pieper, an analyst with Bankhaus Metzler in Frankfurt, said the Passat, which is one of Volkswagen's top four profit earners, looks set to maintain VW's dominance in the mid-sized volume segment.

Passat sales in Europe, its main market, are forecast to surge 65 percent to 228,000 vehicles next year, according to IHS Automotive. Deliveries of the Ford Mondeo, the closest mass-market competitor, are due to be less than half the Passat's level.

Higher sales and lower development and production costs from VW's parts-sharing strategy could help double the Passat's profit margin to as much as 8 percent of sales, according to Pieper.

The new Passat wagon - 'the quintessential corporate car.'

Photo credit: Reuters

VW complements the new technology with a sleeker look for the new Passat.

VW said it will begin advance sales of the new Passat on Thursday, July 10 with the car arriving in dealerships early next year. Prices in Germany start at 25,875 euros ($35,200) for the sedan, at least 3,400 euros cheaper than rivals from Mercedes and BMW. The Passat wagon starts at 25,950 euros.

The Passat is Volkswagen Group’s third best-selling car across all 12 brands after the VW Jetta and Golf, contributing a volume of around 759,000 vehicles last year. Volumes in Europe have so far managed to hold up despite the model coming to the end of its life cycle, sliding only 3 percent to 65,332 cars in the first five months, according to the latest figures from JATO Dynamics.

U.S. Passat sales fell by 11 percent in the first half. The U.S. Passat will be renewed in 2017 or 2018. The European Passat is more expensive and more upscale than the Passat built for the U.S. market in VW’s factory in Tennessee.

Euro zone growth

Improving economic fundamentals for the euro zone have brightened the picture for future fleet sales. Credit Suisse forecasts economic growth in the euro area will accelerate to 2.2 percent next year from an estimated 1.2 percent in 2014.

Fleet buyers are responding to the improved outlook by ramping up their car purchases. Excluding registrations to manufacturers, dealers or rental agencies, Dataforce figures show sales of new cars to corporate customers in the five main European markets grew at a cumulative rate of 13.5 per cent for the first five months of this year, while overall demand grew at less than half the rate at 6.3 percent. 

In its annual survey of 50,000 fleet car purchasing managers in Germany conducted between September and February, Dataforce concluded that they were planning a significant increase in their investments, estimating the potential volume of new cars that could be bought was 21 percent over the previous year.

“Thanks to the improvement in the economy, companies are once again willing to invest and expand their car parks – a trend, which should remain intact over the course of the year and be a main pillar of support for the German auto market,” said Peter Fuss, a partner at EY.

The continued investments by fleet car purchasing managers is essential for the success of the new Passat in Europe. Official statistics show that only about one out of every ten Passats sold in VW’s home market of Germany are registered to private buyers.

“Private car buyers are turning their backs on the mid-size segment and switching to SUVs, crossovers and small and compact cars, so over time the share of demand for mid-size cars originating from fleet customers will increase,” Dataforce’s Kibies said.

Bloomberg contributed to this report

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