Our friend Derek Kreindler from TTAC wrote a great editorial today on why the new Phaeton is foolishness from a business perspective. He is correct that mid and large size sedans like the Impala and Taurus on on the decline, but I think Derek is looking at the wrong targets for the big VW. The Impala and Taurus are mainstream FWD sedans that are offering just a bit more space and "luxury" than their more popular mid-size counterparts. However, Hyundai and Kia seem to think there is a business case again for "affordable luxury." In this small but focused market is where the Phaeton could hold its own.
I will spare you all the mistakes VW made when they brought the Phaeton to the US the first time, but the primary issue was price. They tried to sell an incredibly expensive, albeit advanced, VW without a luxury badge. That didn't work then, but it could work now. 2004 was the best year for Phaeton sales with a whopping 1939 units sold, it rounded out the production run in 2007 with 17 units moved. Fast forward to 2010, Hyundai launches the Equus in the US. Sales were off to a rocky start 196 units. However, last year Hyundai managed to find over 3500 Equus customers (correction from earlier quoted 32k, those are Genesis numbers). These aren't massive sales by any means, but consider that BMW only moved less than 11k 7-series in 2013, Audi sold 6300 A8s and Mercedes topped flagship sedan sales with 13k S-classes sold. The modest success of the Equus has even prompted Kia to release their K900 which is based on Hyundai's platform.
Now remember how I mentioned that the lack of badge appeal was an issue for VW back in 2004, that seems to be shifting. Don't get me wrong most luxury buyers what the 3 pointed star, roundel, or 4-rings on the hood when they are dropping that kind of cash. But the Koreans are proving that there are enough buyers to justify a high-end luxury sedan provided you don't charge the high-end luxury price. In the US Hyundai/Kia do not have any luxury pedigree, but this can be both a blessing and a curse. I have been critical of Hyundai/Kia's attempt at the luxury realm, mostly due to their dealership philosophy. I still maintain that the Korean cars offer an interesting alternative to frugal minded luxury shoppers.
VW's connection to Audi could give them the opportunity to sell that flagship "German engineering" at a lower price. Many VW dealers are attached to Audi stores, so customers can actually compare the value that the Phaeton will offer in comparison to an A8 or A6. I can see the sales pitch now "You see sir, it is the same equipment as the Audi but not as expensive." Now VW AG has made a point that it does not want to compete with itself, so it remains to be seen how VW's pricing strategy and marketing will play out. Of course, one of the key elements will be undercutting Hyundai and Kia's lease offers
Sedans are dying, but luxury sedans are still going strong. Will VW be able to make a case for the Phaeton this time? Thanks to some Korean competition, I have a feeling the market will find a place for the big vee-dub.
(Image via Motor Trend)