At first glance, it seems like a contradiction: Volkswagen AG's new mid-sized sedan, which will be built for North American customers in the automaker's new U.S. factory, is supposed to be bigger and cheaper than the Passat that it replaces.
A clever trick if you can pull it off. Volkswagen wants to make its Passat replacement competitive with the mid-sized segment stalwarts in the U.S. -- the Toyota Camry, Honda Accord and Ford Fusion -- and thereby boost sales sharply.
VW's $1 billion factory in Chattanooga, Tennessee, which starts production next year, is designed to build up to 150,000 units a year. If VW can sell that many, it would be a steep jump from last year's U.S. sales of 11,138 Passats.
Prices for the Camry sedan in the U.S. start at $20,345, and the Accord LX sedan starts at $22,805. By contrast, a VW Passat with a 2.0-liter turbocharged engine starts at $27,945. All prices include shipping.
VW wants to squeeze the Passat replacement, dubbed for now the New Mid-sized Sedan, down to the low twenties. Tom Loafman, U.S. purchasing director for Volkswagen Group of America, outlined some of the strategies VW will use to get the car's price down.
-- Buy nearly all parts in North America. VW will obtain at least 85 percent of the sedan's components in North America, topping its earlier target of 80 percent. "We have overachieved," Loafman brags. Buying local allows VW to avoid currency fluctuations that can drive up the cost of parts.
-- Use carryover components from the VW Jetta. Loafman plans to share 30 percent to 40 percent of the parts from the Jetta, which is built in Puebla, Mexico, with the new sedan. "It's a tough task" to design a new car with carryover parts, Loafman said. "It's amazing how well product engineering held to it."
-- Help suppliers to minimize their investments. The theory: If suppliers spend less on factories, land and tooling, they can charge less for parts. Five suppliers have set up shop in a supplier park next to VW's assembly plant, currently under construction. Other suppliers are simply converting underused floor space in their existing factories.
-- Design a vehicle with fewer frills. The Passat was designed for relatively upscale European consumers. VW has concluded that price-sensitive U.S. consumers simply aren't willing to pay for the extras found in a mass-market European sedan.
Loafman did not say whether VW will achieve the pricing target that it has set for itself. But VW is meeting other targets.
"We are still on schedule and on time for production in the first quarter next year," Loafman said. "The plant is moving along quickly."