VW confirms new budget brand

The saga of Volkswagen’s on-again-off-again budget brand is officially on again.

And, according to the brand’s head of development, it’s never been “off again” at all, in spite of reports out of Europe insisting on its demise.

Dr Frank Welsch has revealed the budget brand will be launched in China within two years, starting with a small sedan and adding compact and larger SUVs before 2021.

Dr Welsch said reports of the death of the program confused a cancelled Skoda-Tata program for an Indian budget car with Volkswagen’s own gestating budget brand.

“The thing that you might think of is this Tata/Skoda story,” Dr Welsch explained.

“This is India and this is not a budget car for China. This is different and I cannot comment what Skoda is doing.”

Reports of a VW Group budget brand positioned below Skoda first surfaced in 2012 and then again in 2015, when the company’s former development chief Dr Heinz-Jakob Neusser ruled it out for Australia.

Dr Welsch first admitted to details of the budget brand program during the launch of the Golf Mark 7.5 earlier this year, then reiterated its scheduling before the Frankfurt motor show.

“The only thing that is not changing in the last six months is the budget car.

“Everything we discussed at that time is still on track. There is no change -- no change in timing or engineering or concept.

“I think everything that you wrote then is correct. A lot can change at Volkswagen in six months but it’s quite easy. You talk to me and you just believe what I’m saying.”

Dr Welsch and Volkswagen brand CEO Dr Herbert Diess are aiming to use the brand to emulate Renault’s success with Dacia by engineering its first vehicle down to a target price of around 70,000 to 80,000 RMB ($A13,400-$15,300).

Volkswagen is also unashamedly targeting Chinese SUV brand Haval.

It will build the brand, and the models, with its Chinese joint-venture partner, FAW, to tackle the Chinese domestic market as a priority before going global.

The original Volkswagen plan called for a budget sedan, but Haval’s success forced it to flesh it out from one model to three, including two budget SUVs.

“Everybody knows China is a sedan market, but it’s not. The Chinese people who have less money, what do they like? They dream of SUVs. Look at the Haval H6,” Dr Welsch pointed out months ago.

“We want to be as successful as Haval in that market. If we had added one SUV, then it’s quite easy to have two versions of that if we change the wheelbase and add a third seating row.

“Also, we have to keep in mind that economy segment will be a strong segment not only in China.”

China takes about half of the Volkswagen brand’s six million car sales a year, but it also has ideas to use it to tackle India and Mexico.

It will face tough competition on the subcontinent, with Renault launching a second stand-alone brand there because the Dacia range is too expensive to generate mass volumes. In a market dominated by Suzuki, Renault launched its Kwid crossover with a business model at odds with car-industry tradition.

The Kwid’s development centred on new architecture and a Spartan-like discipline to keep costs down, rather than prioritising a launch date as almost all car development programs do.

Volkswagen won’t do that, but will avoid the more expensive MQB architecture that sits beneath all of its small-to-medium cars and SUVs, including the Polo, Golf, Tiguan, Passat, Arteon and Teramont/Atlas.

It will instead use superseded pieces to keep its costs low and Dr Welsch’s team is working on tweaks to the Golf Mark 6’s core engineering, even though its production run ended in 2013.

“But for the budget car, which is lower end, why not use components that are working properly but they have invested in production for 10 years already? This is much better for a project,” Dr Welsch admitted earlier this year.

“The easiest thing would be to stay in premium products and standardise and stay in that and leave the low price things to other players.

“But in certain parts of the world, we will need such economy cars and in China, 40 per cent already is with economy cars. To offer cars for 60 per cent of the market or with 65 per cent of the market? If we want to be number one in China we have to address this budget market as well.

“It’s not easy, but we have to fight to get that knowledge to make low-price cars that make money because without making money it’s not such a good idea.”