Volkswagen Expects To Gain US Market Share In 2011; Eyes Large SUV

Volkswagen AG (VOW.XE) expects to gain market share in the U.S. this year and could add a large sports-utility-vehicle above the Touareg model to its lineup as part of its ambitious expansion plan in North America.

"Around 60% of the trade-ins for our new Jetta come from other brands ... including Nissan and Ford," Volkswagen's U.S. chief Jonathan Browning told reporters on Sunday during a press briefing at its U.S. headquarters ahead of the North American International Auto Show. He described Toyota Motor Corp. (7203.TO), Honda Motor Co. (7201.TO) and Hyundai Motor Corp. (005380.SE) as main competitors for VW in the U.S.

The German automaker last year launched a new version of the Jetta, its best-selling vehicle in the U.S., and expects the new car to foster sales growth in coming months as part of its effort to turn around its loss-making North American operations.

Browning said during an evening event late Saturday in Washington that the new-midsize sedan, which will be presented for the first time Sunday evening at the auto show in Detroit, could account for roughly the same annual sales volume as the Jetta in coming years. He said he also sees further sales growth potential in the U.S., particularly for the Golf hatchback and the small Tiguan SUV. He added that a larger SUV with three row of seats above the Touareg could be a promising addition to the brand's U.S. lineup to attract a broader range of customers.

The VW brand posted a 20% sales rise year-on-year in the U.S. 2010 to 256,830 cars, compared with a 23% increase at the company's Audi premium brand to 101,629 cars. Volkswagen's total market share in the U.S. edged up to 3.1% last year from 2.9% in 2009.

Browning said sales are expected to come in around 300,000 vehicles at the VW brand and around 100,000 at the Audi brand in the U.S. this year. Asked whether this indicates flat sales at Audi in the U.S. this year, he noted that the company does expect to grow in 2011, but declined to elaborate on specific sales targets for 2011.

He reiterated, however, Volkswagen's long-term target of boosting U.S. sales volume to 1 million vehicles by 2018, with the Audi brand accounting for 200,000 cars.

"Volkswagen and Audi will become leading brands in the USA ... It's not a dream. It's a plan," Volkswagen's sales chief Christian Klingler told reporters last year.

Growth in the fiercely competitive U.S. market is crucial for Volkswagen's ambitious global expansion plan, which includes overtaking Japanese auto behemoth Toyota as the world's largest auto maker.

Volkswagen emerged relatively unscathed from the dramatic industry slump in 2009, due mainly to a large presence in China and a strong foothold in Brazil. Additionally, sales on in German market were supported by state-backed scrapping incentives during the economic downturn.

But Volkswagen's turnaround efforts in the U.S. have proved to be an uphill battle in recent years and market share remained relatively small, leading the company to boost investments.

Chief Financial Officer Hans Dieter Poetsch said last year the company's U.S. unit might not be profitable again until 2013. Browning said late Saturday this target remains unchanged.

Volkswagen is building a new plant in Chattanooga, Tenn., for the production of a mid-sized sedan, which will hit showrooms later this year, with annual production capacity of 150,000 cars.

VW is investing up to $1 billion in the plant and creating about 2,000 jobs in Chattanooga. Volkswagen closed its last U.S. plant in Westmoreland, Pa., in 1988 due to under-utilization amid sluggish sales.

The company is also building a new engine plant in central Mexico with an investment of EUR400 million to supply its car-production plants in North America starting in 2013.

The new facility in its first phase will have an annual production capacity of 330,000 engines and will supply the assembly plants in Chattanooga and Puebla, Mexico.

Ramping up local production and purchasing is crucial for Volkswagen's turnaround plan in North America, because it will reduce the automaker's exposure to unfavorable currency fluctuations, which have been a major concern in recent years for many global automakers.

-By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com

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