WRZESNIA, Poland -- Volkswagen aims to grab a greater share of the lucrative segment for large cargo vans dominated by Ford Motor, Fiat and Mercedes-Benz after investing about 800 million euros in a new manufacturing plant that marks a record for its light commercial vehicles division.
The move was necessary after Daimler stopped building the Crafter, which was a badge-engineered derivative of the Mercedes Sprinter.
The new factory here is expected to build 100,000 units of its entirely redesigned Crafter annually when all body style and powertrain derivatives are available in 2018.
The Crafter will offer new features such as front-wheel drive and automatic transmission, both previously not offered. These should help to double the van's current volume according to VW managers. The van also will be equipped with Volkswagen’s RIO open telematics platform, a cloud-based software solution that goes live next spring that can be used by any customer with a mixed fleet of vehicles.
Demonstrating the importance of the model, both Chairman Hans Dieter Poetsch and Lower Saxony Premier Stephan Weil, two of VW's most important board directors, flew in to attend the opening ceremony late in October along with the Volkswagen Truck & Bus CEO Andreas Renschler.
Market watchers believe the big investment makes sense. "The life cycles of these vehicles is far longer and they’re not as susceptible to swings in consumer tastes as passenger cars," IHS Automotive analyst Ian Fletcher said.
The market for "C/D Transporters," as VW calls large delivery vans with 3 to 6 metric tons of gross permissible weight, is more than 1.3 million vehicles in size globally and growing thanks to the trend toward online shopping firms such as Amazon or Zalando in Germany. However, VW mainly competes in the western European market which increased by 14 percent last year to nearly 500,000 units.
“The C/D transporter segment is the largest commercial van segment with undoubtedly one of the best prospects due in part to online services,” said VW vans chief Eckhard Scholz, adding that the Crafter would benefit from the largest distribution network for light commercial vehicles in Europe.
While anything but sexy, it's a well-known axiom that the commercial vehicle business can be extremely profitable when run properly.
It is perhaps no coincidence that Ford of Europe, market leader in light commercial vehicles, earned a 4.9 percent pretax margin during the first nine months.
Meanwhile, Opel/Vauxhall had long neglected the commercial van businesses and ended up breaking even during the same period -- and then only on an operating level and after adjusting for effects. Addressing this vulnerability has now become an "fundamental element" of the General Motors brand's 2022 growth strategy.
The risks however have never been higher for VW's van business, best known for building the Volkswagen Bus that became a pop culture icon during the Flower Power era of the 1960s.
Like many automakers in this comparatively low-volume segment, VW had previously split the development costs by partnering up with a competitor. The outgoing Crafter was based on the Sprinter from Daimler's Mercedes-Benz unit and built by Mercedes. Daimler only supplied the 50,000 units annually that it was contractually obliged to do and in 2013 decided to end the partnership entirely to gain the extra capacity.
Much like the passenger car market though, larger vehicles are more lucrative than small ones. "Mercedes' van business makes all its money with the Sprinter," said one VW commercial vehicles manager.
Volkswagen took a risky bet by developing a platform solely for the Crafter which is technically incompatible with the rest of the 12-brand group's vehicle. No other vehicle in the entire product range comes equipped with axles capable of supporting the weight needed for the segment except for the heavy trucks sold by VW Group's MAN and Scania heavy truck brands.
Additionally the problem arose that none of the group's 130 manufacturing plants worldwide were adequate to build the Crafter given none had the required dimensions for assembling and painting a model such as the Crafter, which is 7.4 meters in length and three meters high. The paint shop has 12 swimming pool size tanks alone dedicated to various stages of cathodic immersion coating.
As a result, the 2.2 square kilometer size of its plant in Wrzesnia - roughly equivalent to 300 soccer fields - makes it the group's biggest factory for one single model.
"The length of the vehicle determines the factory," Jens Ocksen, president of Volkswagen Poznan, told Automotive News Europe. The Polish unit of VW's commercial vehicles division already builds the small Caddy car-derived van in neighboring Poznan.
IHS Automotive’s Fletcher said VW had few choices if they wanted to remain in the segment: "Without building this facility, it was unlikely they could have found the capacity required and they’ve chosen to build it in a cost effective location where they have experience of building vehicles."
VW hopes that by adding front-wheel drive models it can increase volumes mainly from businesses that need a vehicle offering plenty of volume to store a product that doesn't have a lot of weight, for example bakeries or florists.
An additional benefit of removing the drive shaft is the corresponding 10 centimeter lower floor. While it sounds minor, VW officials say it saves drivers climbing the equivalent of climbing over 600 stairs every month. The sliding door has also been designed to shave off three seconds each opening and closing. These savings translate to more trips they can take and hence more money operators earn.
Lastly, VW will now finally be able to offer automatic transmissions, which the Crafter needs in Germany to participate in tenders made by emergency services for ambulances or police vehicles.
Volkswagen is considering whether to launch the Crafter in the U.S. market, where more and more European vans are succeeding thanks to their lower cost of ownership. Ford began building its Transit in Kansas City, Missouri, while Mercedes is investing half a billion dollars to begin manufacturing the Sprinter in Charleston, South Carolina.