By on October 23, 2012

According to Bloomberg, Volkswagen CEO Martin Winterkorn claimed that “Brazil is very much a cornerstone” in VW’s push to become the world’s largest car maker by 2018.

Herr Winterkorn is in São Paulo for the largest and most important Auto Show in Latin America. Striving to make the most of this unique opportunity, the Brazilian press was all over VW’s CEO. He didn’t disappoint. He announced investments of 4.4 billion dollars to expand VW’s model line and modernize their factories in Brazil until 2016.

Well, they better!

VW is under attack from all sides. Its Gol has been the market leader for over 25 years and this year will surely be again. How long, remains to be seen. Aptly named, it presents a prominent goal for an impressive array of hungry competitors.

With an eye on the ultimate bragging right and all the profit derived thereof, Hyundai, Toyota and General Motors are all contenders for Brazil’s best sold car. Hyundai recently launched the HB20. Toyota the Etios. GM is finally coming out with the Onix, a car that promises to eliminate their cheapest offerings, which are all based on the Opel Corsa from 30 years ago.

Hyundai is leading the charge. It benchmarked the Gol from the git-go of the HB20’s development. Close your eyes and the sensation (though not the engine note) is very similar. I see a lot of Gol in the HB20’s design as well. The HB20 is already making waves. There are lines at dealers and dealers are happy to charge anywhere from 2 to 4 thousand US dollars over list price.

Toyota is banking on its brand to win over consumers. All in all a competent car, the Etios is nonetheless quite dowdy looking. As it appeals to a more rational buyer, the Etios will make its mark slower.

GM has completely renovated their line. Gone are the Opel-based Astra, Corsa, Meriva, Vectra, Zafira. In are the Daewoo-engineered Cobalt, Sonic, Spin, Cruze. Though the GM fanboys are all over Brazilian sites lambasting the new reality, Brazilian consumers are shrugging that off and are happily putting their money into GM’s piggy bank. The Cobalt is selling more than 7,000 units a month making it the market leader in the oh-so-important, B-sized, A-priced sedan segment. I for one am impressed and for the first time in my life, I can actually recommend (with a clear conscience) GM cars over competitors.

Fiat’s offerings are becoming a little stale. Look for them to offer price cuts (like not raising prices when tax breaks end) in an attempt to counterbalance the competition.

Ford has finished expanding their factory in Bahia. It has launched the new mini-CUV, the EcoSport and is starting domestic production of the Aston Martin-inspired, face-lifted New Fiesta. Depending on price, Ford could even stave off Renault’s advances and hold on to their traditional fourth place in our market.

Renault should have the new Sandero and Logan out by the middle of next year. They carved out a niche for themselves based on good levels of content, space and aggressive pricing. Fourth place is within reach.

Nissan also is gaining ground and taking customers from VW. They are building their factory at breakneck speed and Versa and March sales are only hampered by the quotas imposed on imports.

Not to mention the Chinese. Though barely cracking 1% of the passenger car market, their main target are small, affordable cars. Chery, JAC, Great Wall and other assorted unknowns vie for a place under the hot Brazilian sun.

So as you can see, VW is facing tough competition. The Gol/Voyage/Fox are not enough anymore. The investment announced by Senhor Winterkorn is for VW to build here a simplified version of the Up!. That would allow them to position it under the Gol and get them into the 23 to 27 thousand real market. Whether the market will react positively remains to be seen. Considered a subcompact in Europe, the Up! would be sub-subcompact in America. This size of car faces an uphill battle in the Brazilian market. The Twingo’s and Ka’s example stand out. Though hugely successful in Europe, in Brazil they never sold as many as their makers intended.

The second car coming out of this investment is the Santana. Aimed squarely at the Logan, Versa, Cobalt and Grand Siena, it will be VW’s first foray into a growing and even more lucrative segment in Brazil. Many people here perceive such sedans as a step up from the lowlier, smaller and simpler hatchbacks and pay accordingly. In an evil twist and something of an oddball in VW’s sprawling empire, the Santana will not rest on the modular-whatever-thingy. It remains to be seen whether it will sit on the PQ24 or PQ25 platform. The former, a car from 20 years ago. The latter, a car from 10 years ago. As the Cobalt, Versa and even Siena are all new cars, I think VW will have trouble there. Besides, this platform will have to be heavily modified if the Santana wants to offer as much internal space as Cobalt and Logan, both of which are wider than the more traditionally subcompact-sedan-proportioned Versa and Siena.

VW is playing a risky game. They seem hell bent on producing only subcompacts and compacts in Brazil. Larger cars are drawn in from elsewhere in the Empire. The Golf, Touareg, Beetle, Passat among others all come or will come from Mexico and sell or will sell a conta-gotas. Maybe some of this money is destined to nationalize Golf in 2014 or later. They just have to do it to remain relevant in that important, image-building segment.

VW will continue to see its market share erode, as will the other 2.5 of the Big Brazilian 3.5. The Brazilian market is undergoing profound changes. It is now becoming more European in its make-up. Going fast is the old American style of 3 or 4 big makers dominating sales and calling the shots. An Euro-like scenario seems to be the future. In that case, more competitors have to make do with smaller slices of an ever-growing pie.

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11 Comments on “Volkswagen Under Attack In Brazil. Here is The Order Of Battle...”

  • avatar
    Athos Nobile

    “It remains to be seen whether it will sit on the PQ24 or PQ25 platform. The former, a car from 20 years ago. The latter, a car from 10 years ago.”

    Oi Marcelo.

    You reckon it will matter? I don’t think normal customers will bother. Honestly, I am starting to not give a crap about platform this or that. As long as the thing does it job como dios manda…

    I also share your worries about tiny cars. The Twingo sold well in Venezuela, the Ka was a bit less successful. They may find a niche, but the volume is with those Palio-like hatches and little sedans.

    VW has just launched the Up! here, I still haven’t seen the first in the street… yet. Maybe in a couple of months, since Opel is “back” and have already spotted a couple of Astras which is a gorgeous car.

    • 0 avatar

      Hola Athos! Cómo le va?

      Well, the platform underpinning the Santana is a good one to be sure. What bothers me is that over time, things have evolved. The Uno and Palio are much better cars today than before. The GM cars (which I was prepared to hate) surprised me with their comfort and serenity. The Renault/Nissan cars all have excellent road manners and behavior. The Hyundai has almost everybody (not me!) slobbering.

      The Polo on the other hand feels the passage of time. At launch, it was surely the best riding, handling car out there. Now, not so much. Due to the inherent characteristics of the PQs it is also smaller than the competition. It feels cramped. Specially in widthand head space. The market has gone in a direction where there is just more internal space. Can VW adapt it? I hope so, but if they do, will the ride suffer?

      Somehow the game has changed. In the 00s, Brazilian cars felt like cheapened out versions of what was available from the 90s. In the 10s, all the cars are brand-new. Bigger, roomier, better finished and designed inside. The Up itself is quite charming inside. The Polo is traditional. Good for many. but I think just not enough.

      As to Up! let’s see. I just bought a Ka after considering a Twingo. I don’t mind. In fact, I like small cars. Their driving dynamics suit me fine. However, small cars have to serve families here, too. In that case, and for the same mony, the Up! will surely come out short in comparison to competition. If VW keeps the price within the bracket mentioned in text it has a good chance. If they don’t and it creeps up to 30 000 reais, it’s a dud.

      • 0 avatar
        Athos Nobile

        She’ll be alright Marcelo.

        The first gen Palio (178) was done on the old Euro Fiat Uno platform. See how it did.

        The Logan is based IIRC on old Clio bits. Again, roaring success.

        Toyota does a lot of platform recycling too, no problems there either.

        I just checked, and you guys still get the old Polo. The current one looks better, but it is still very conservative. The Scirocco is a beautiful car outside, but then you have that Golf dashboard which quite doesn’t match the exterior.

        The trick here is how they’re going to package the car and tune the whole thing. From what I’ve read here, I wouldn’t worry much. I doubt VW wants to screw it chances in the BRIC.

      • 0 avatar

        Hi Athos!

        I think so. But some corrections. The Logan sits on the so-called BO platform, which is a simplified version of Renault’s B platform that underpins the current gen Euro Clio. So, pretty new.

        The Palio 178 sure, good in the 90s, but now not. Like the new Uno, they now have a dedicated new platform, so even at Fiat times move on.

        GM totally new. Etios, can’t say. Hyundai can’t say either.

        But I get where you’re coming from. My Ka uses the 3 gen ago Fiesta platform. I think it’s a pretty good little car. Part of that is because that Fiesta platform was so good. The previous Fiesta couldn’t compete dynamically as it had been dumbed down. Now, the new Fiesta, yes new dedicated platform is better, wider, longer than the one under my car. So even though Ka is still very good, it ain’t good enough. That’s why platforms are important.

        But don’t worry. This is something that bothers me. Not much anybody else. the casual consumer won’t know (though he’ll wonder when he drives a New Fiesta, or March, or Cobalt, why those cars are bigger and ride better than his Santana).

  • avatar

    Great post, Marcelo.

  • avatar

    @Marcelo, the PQ24 and PQ25 aren’t quite as old as 20 and 10 years — they have been in production since 1999 and 2008 respectively.

    And one key point that you didn’t mention is that Michael Macht did say that VW will be building MQB-based cars in Brazil. “VW’s investment in Brazil will include standardizing factories and installing technology to build cars based on the company’s MQB platform (…)” So the Golf and/or Jetta could well be built in Brazil, I didn’t see anything elsewhere saying that they would continue to be imported — did I miss it?

    Other than that, I very much agree with you that continued sales dominance in Brazil will be a big challenge for VW (and Fiat).

    • 0 avatar

      Hey th009!

      You are right, sir! Though if you think about it, the platforms are older by several years than the dates you provide as it takes time to develop a platform. So they usually have some years under their belt before a car is launched on them. Anyways, I was being a little hyperbolic to underscore a point. Fact is, it still strange for the platforms to gain an extended life in Brazil. If the modular cars are so good, this seems to me as more than a bit of a compromise. While others are going all in, VW is not.

      The modular architecture VW is bringing is exclusively for the Up!. The Taigun thing is far off into the future and I’ll believe it when I see it. I also believe the architecture for the Up would not be the same as for Golf or Jetta. So still waiting on those.

      This is also a question for Bertel and take it as you like. The accepted wisdom in Brazil is that when VW freely admits to something it means it won’t happen or it’s far off in the future. So, if VW suits are talking Taigun, it’s not in the cards for real. Something will come from the small csr architectue (sorry I can’t remember the acronyms, specially in German!), but I’m betting on an Up sedan. Seems VW people think this car is real as it would be perfect for India as the car would be small enough to be classified in the smallest tax bracket there. The fact that VW is not tlking about the car is further proof to VW do Brasil watchers that it could be true.

      guess we’ll have to wait and see.

      • 0 avatar

        MQB could be anything from the Up! to the next generation of Passat. If VW’s Brazilian factories are retooled to produce MQB-based cars, they’ll have a lot of flexibility.

        But right now we only know that VW is building more capacity, and will be producing something MQB-based in Brazil. What it will be we probably won’t know for some time yet.

        And I’m still waiting to see what VW do Brasil’s plans will be for replacing (or updating) the Kombi …

      • 0 avatar

        The Up! is NSF, not MQB. MQB starts next up ….

      • 0 avatar

        th009: See Bertel’s answer (thanks Bertel). So, my point is correct. the modular architecture VW will install in Brazil can produ ce the Up. I think it will also produce a sedan. Maybe the Taigun in 3 or 4 or more years. No Golfs or Passats. At least for now.

        Kombi is dead. In 2014 all cars will have to come with airbags and ABS. Though it seems VW has tried, it is too expensive to retrofit these equipment on it. I say good riddance!

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