(Updates with brand’s earnings in 13th paragraph.)
June 3 (Bloomberg) -- Volkswagen AG is considering tripling the namesake VW brand’s sport-utility vehicle lineup in a bid to overtake Toyota Motor Corp. in global deliveries, two people familiar with the matter said.
The VW marque will offer as many as six SUVs in the coming years, expanding from the midsize Touareg and compact Tiguan currently on sale, said the people, who asked not to be identified in advance of an official announcement.
Demand for SUVs is rising, with the models likely to account for 20.1 percent of global production by 2018 compared with 17.6 percent in 2012, according to consulting company PwC. The VW nameplate’s focus on traditional cars, such as the Golf hatchback and Passat sedan, has in particular held back the brand in the U.S., where rivals have wider SUV offerings.
“The SUV segment is still growing globally, and it’s a key segment for all manufacturers,” Roman Mathyssek, a Munich-based analyst at Strategy Engineers GmbH consulting company, said by phone. “The VW brand still has growth potential in SUVs, which could especially help them to build a stronger position in the U.S. and in emerging markets.”
The $23,305 Tiguan will be updated as a lighter vehicle in 2015 to help lower fuel consumption, and VW is also developing a coupe version and longer variant of the model, the people said. VW may also offer a subcompact crossover, which has characteristics of an SUV and traditional car, choosing between the boxier Taigun and coupe-like T-Roc prototypes displayed at recent auto shows, the people said.
In addition, VW plans to build a mid-size SUV based on the CrossBlue concept that is scheduled to go on sale in the U.S. in 2016. VW has yet to choose the model’s production site pending a cost review that includes potential incentives from governments in Mexico and Tennessee, one person said.
Rounding out VW’s offerings in the segment is the $44,570 Touareg, the brand’s first and largest SUV. Officials at Wolfsburg, Germany-based Volkswagen, the world’s second-largest automaker, declined to comment on the manufacturer’s SUV plans.
VW has a target of beating Toyota in annual deliveries by 2018. The new models would let VW challenge more of the Japanese manufacturer’s seven-model SUV lineup that ranges from the $23,550 RAV4 to the $79,605 Land Cruiser. Detroit-based General Motors Co., which VW passed in global sales last year, offers 14 SUVs, from the $24,160 Buick Encore to the $65,380 GMC Yukon XL Denali. The figures don’t include SUV offerings from Toyota’s upscale Lexus brand or GM’s premium Cadillac.
“Japanese manufacturers were very early to realize the potential of on-road SUVs and developed differentiated products to complement their passenger-car offerings before most European peers,” said Christoph Stuermer, lead analyst for PwC’s Autofacts forecasting service. “A growing number of planned coupe-style variants will add to the dynamic of the trend toward SUVs and crossovers.”
The moves mirror a broader push into SUVs under way at VW’s premium brands. Porsche began delivering the Macan compact SUV in Germany in April. The model, priced at 57,930 euros ($78,800) in Europe and $49,900 in the U.S., and the larger Cayenne are likely to bring SUV deliveries to 64 percent of Porsche’s total sales by next year, with its traditional sports cars such as the 911 accounting for 24 percent, according to consulting company IHS Automotive.
Audi offers three SUVs and will introduce a fourth, the subcompact Q1, in 2016. Volkswagen’s high-end brand Bentley plans to bring out the world’s most expensive SUV that year. VW’s Lamborghini performance-car unit is considering introducing an SUV in 2017.
SUVs typically are more profitable than cars. The models being considered would be targeted at helping the VW brand approach a goal for operating profit to exceed 6 percent of sales, compared with a margin of 2.9 percent earned last year.
First-quarter operating profit at the VW marque dropped 25 percent to 440 million euros, totaling 1.8 percent of revenue. That compares with margins of 10.1 percent at Audi and 17.7 percent at Porsche. At the Czech mass-market Skoda unit, which currently sells no SUVs, earnings were at 6.2 percent of sales. Figures don’t include income from VW’s two Chinese joint ventures.
Chief Financial Officer Hans Dieter Poetsch said at the annual shareholders meeting last month that earnings at the VW brand should improve over the course of 2014, after the cost of rolling out modular manufacturing technology weighed on earnings in recent quarters. The production process is designed to enable VW to develop and build new models and variants at a lower cost by sharing larger sets of components.