Volkswagen to halt production of the Phaeton Luxury Saloon, ready for a new Electric model in 2019.

Volkswagen will suspend production at its small showcase factory in the German city of Dresden next year as the carmaker alters its model strategy to cut costs in the wake of the emissions test scandal.

VW said in October it would discontinue production of the Phaeton sedan, which is built at the glass-walled plant in the eastern state of Saxony. The model -- a pet project of former Chairman Ferdinand Piech which cost more than 1 billion euros ($1.1 billion) to develop -- has never met sales targets since coming to market in 2002.

Production of the Phaeton, assembled by 300 of the Dresden plant's 500 workers, will end in late March. The site, the smallest of VW's 10 German factories, will then be reconfigured for about a year to prepare for producing an all-electric Phaeton by about 2019.

"Production in Dresden will be suspended during the restructuring phase," Jens Rothe, head of the works council of VW's operations in Saxony, said on Wednesday, adding that the plant would be awarded a new product for when it reopens, ensuring "employment will in future be secured on today's level".

VW has pledged to expand its offerings of hybrid and all-electric cars as its rigging of U.S. diesel emissions tests is seen by analysts as casting a shadow over the entire diesel vehicle industry.

VW said on Wednesday that, as planned, it would start modifying millions of diesel cars at the end of January to ensure they met emissions regulations. The plan involves recalling 8.5 million cars across European Union nations, including 2.4 million in Germany.

Analysts have long expected cutbacks in Dresden where output of the most expensive VW-badged model has fallen to about eight cars per day due to weak demand. Manufacturing areas of the plant have all-parquet floors with workers wearing white uniforms, and sometimes even white gloves as they assemble cars by hand.

The planned production shutdown, announced at a staff gathering, ties in with plans by Europe's largest automaker to cut about 600 temporary jobs next year at another Saxon plant in Zwickau.

Rothe said production staff in Dresden affected by the shutdown will need to commute to Zwickau, about 120 km (75 miles) west of Dresden, where VW builds the Golf hatchback and the Passat sedan.

Labor representatives at VW's Porsche arm are in talks with the sports-car manufacturer on offering at least some of the temporary workers from Zwickau the chance of employment at Porsche's two German sites.

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VW has identified cost savings of nearly €2Bn at the main brand to offset future emissions scandal costs.

Volkswagen Group has identified about 1.9 billion euros ($2 billion) in savings at its namesake car brand to help offset fines and recalls stemming from the manipulation of vehicle emissions.

The VW brand, the automaker's largest unit, plans to eliminate some variants and trim options to reduce complexity and cost, Bernd Osterloh, the automaker’s top labor representative, said Friday in a briefing with journalists at VW’s headquarters in Wolfsburg.

The pictures below are for illustrative purposes only and not to be considered as any, in part or whole, model that will be discontinued, cut back or phased out in the future - If in any doubt, please feel free to ask.

The automaker's senior executives are expected to participate in the broader savings effort with lower bonuses.

"We from the works council have long flagged the huge range of model variants and different components," said Osterloh, a supervisory board member and one of the most powererful figures at VW Group. "That brings enormous complexity and adds to costs, for example, for logistics. We can take out costs there on a large scale and don't have to talk about job cuts."

The VW brand targets a total of 5 billion euros in efficiency gains. Herbert Diess, the head of the unit, vowed to accelerate the savings program amid the mounting costs of the scandal, which VW so far has estimated will cost the company 8.7 billion euros. The VW brand also plans to reduce investment by 1 billion euros a year.

Volkswagen is grappling with an emissions scandal on three fronts: cheating software installed in about 11 million diesel vehicles worldwide with 1.2-, 1.6- and 2.0-liter engines; irregular carbon dioxide ratings on about 800,000 vehicles in Europe; and questionable emissions software in about 85,000 VW, Audi and Porsche vehicles with 3.0-liter V-6 diesel engines in the U.S.

Savings will be key as customers are balking at buying new VW vehicles because of uncertainty created by the scandal, Osterloh said.

Volkswagen executives have generally downplayed the effect of the revelations over the manipulations on customer behavior. To respond to weaker demand, the manufacturer plans to scale back production to avoid bloating inventory of unsold vehicles, said Osterloh, who represents VW's 600,000 workers to the company's management.

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Volkswagen drops again in the first four months of the year - with a 22,000 drop in sales.

• Brand achieved strongest growth in European markets

The Volkswagen Passenger Cars brand delivered 1.98 (January-April 2014: 2.02; -2.2 percent) million vehicles in the first four months of the year. 496,100 (April 2014: 521,000; -4.8 percent) models were handed over to customers in April. 

“So far this year, the Volkswagen Passenger Cars brand achieved its strongest growth in Europe”, Christian Klingler, Board Member for Sales and Marketing for the Volkswagen Group and the Volkswagen Passenger Cars brand, said. 

“However, developments in the global market situation remain mixed. Russia and the South America region in particular continue to require our full attention,” Klingler continued.

The Volkswagen Passenger Cars brand delivered 582,000 (467,800; +2.5 percent) vehicles on the overall European market in the first four months, of which 318,100 (298,400; +6.6 percent) units were handed over in Western Europe (excluding Germany). 

Deliveries on the home market of Germany grew by 7.6 percent to 198,100 (184,100) vehicles. Deliveries in Central and Eastern Europe in the period to April declined: 65,900 (85,300; -22.8 percent) units were handed over there. In Russia, the company delivered 24,300 (45,800; -47.0 percent) vehicles during the same period.

The brand recorded a slight decrease in deliveries in the Asia-Pacific region in the period to April, handing over 972,000 (993,400; -2.2 percent) units there, of which 899,400 (921,400; -2.4 percent) were delivered in China (incl. Hong Kong). 

Volkswagen Passenger Cars handed over 185,100 (184,400; +0.4 percent) vehicles in the North America region in the period to April, of which 109,200 (118,200; -7.5 percent) models were delivered to their owners in the United States. In the South America region, deliveries from January to April decreased to 167,400 (207,700; -19.4 percent) units, of which 126,100 (165,400; -23.8 percent) were handed over to customers in Brazil.

Volkswagen offers new online reserve facility for their huge range of second hand used cars.

Volkswagen has further enhanced its multi-award-winning ‘Das WeltAuto’ used car scheme and website by adding a new ‘Reserve Online’ function.  This builds on the success of the ‘Online Offer’ feature which was introduced last year and allowed customers to express an interest in a car they had found via Volkswagen’s online used car locator. 

Reserve Online additionally enables them to pay a £500 deposit quickly and easily using PayPal’s secure payment facility.

The Das WeltAuto website – www.volkswagen.co.uk/used – is already comprehensive and incorporates a fully responsive (for all devices) used car locator which is easy and intuitive to use.  

When customers have found a car that suits, they are given contact details and a map for the Retailer, full information on the car, its features and tech spec, a reminder of all the standard Das WeltAuto features and guarantees plus the facility to generate a finance quote and understand what their monthly payments would be.

Once they’re sure it’s the car they’re after they can make an enquiry, make an offer, or reserve the car.  This last facility has been added in response to customer demand, with purchasers wanting the surety of knowing they had placed a deposit on a car and had secured it for purchase.  

Should the customer see the car at the selling Retailer’s premises within 48 hours and decide against the purchase, they would then be entitled to a full refund back to their PayPal account.

Commenting on the new feature, Ian Plummer, Head of Sales Operations for Volkswagen UK said: ‘Most customers nowadays start their journey to a used car purchase on the internet, and there is a growing expectation that they should also be able to formalise the sale remotely and outside normal trading hours.  

Using Reserve Online and PayPal, we can offer them a secure way of placing a deposit and then giving them time to view and collect the vehicle, adding to the reassurance that our customers feel when buying used cars from the Volkswagen franchised network and its Das WeltAuto programme.’

The first customer to use the new system was Saikat Chatterjee who located a 57-plate Volkswagen CC at EuroCanterbury in Kent.  He found the system easy to use and has now taken delivery of his new car.

Das WeltAuto, with its distinctive orange branding, is now an established used car ‘brand’ for Volkswagen and stands for used cars customers can trust – guaranteed.  Buying a car with the Das WeltAuto seal of approval is designed to give customers the same exceptional level of experience as a new car customer, with complete confidence and peace of mind.

Standard elements of all Das WeltAuto approved cars include 142 pre-sale checks, a minimum 12 month warranty, 30 day/1000 mile 'No Quibble' Exchange Policy, minimum 12 months roadside assistance for the UK and Europe, independent vehicle history and mileage tests, service history checks and five days free Volkswagen insurance.

VW joins other brands in cutting shifts and laying of staff in Russian automotive crash.

Volkswagen said it will reduce shifts and lay off at least 150 workers at its Russian car plant in Kaluga.

The plant will work four days a week from April to July this year, while in May the number of shifts will decrease to two from three, VW said. Production will be suspended for two weeks on May 5-8 and May 12-15.

"In the first months of 2015 the Russian auto market continued to feel the impact of a weak economy, significant price increases and high interest rates. We don't expect that to change in coming months," VW said in a statement.

The company said its investment plans were intact, with the construction of a new engine plant and an auto parts warehouse on schedule. "The Russian market still has a significant growth potential long-term," it said in the statement.

Daniel Schwarz, a Frankfurt-based analyst for Commerzbank, said: "We are expecting another passenger-car market decline of about 25 percent in Russia this year. Adjusting capacity makes sense."

VW has already sent more than 100 workers from Russia to Germany for training programs and will transfer some employees from Kaluga to the nearby engine factory or the company's warehouse operation outside Moscow, company sources said.

Sales of VW Group vehicles in Russia dropped 27 percent to 27,527 in the first two months, according to data from the Moscow-based Association of European Businesses. The group's market share is 11.3 percent, making it the No. 2 group by sales after the Renault-Nissan-AvtoVAZ alliance, which had a 34.7 percent share.

VW started a five-year, 1 billion-euro ($1.08 billion) Russian investment plan in 2013, which included spending 250 million euros on the new engine factory. Russian regulations require carmakers to use locally manufactured engines in at least 30 percent of vehicles produced in the country by 2016. The Kaluga factory, about 170 km (105 miles) southwest of Moscow, employs 5,300 people and started production in 2007.

VW Group builds the Audi A6, A7, A8L, Q5, and Q7 together with the VW Polo and Tiguan and Skoda's Fabia and Octavia models in Kaluga, according to Automotive News Europe's European car assembly plant map.

VW is the latest western carmaker to change direction in Russia as economic sanctions hamper growth and consumer spending.

Before the ruble's collapse last year, the country had been forecast by analysts and industry executives to overtake Germany as Europe's largest sales region. As inflation surged to its fastest pace since 2002 in February, car sales dropped 38 percent in what Russia's Association of European Businesses said was "only the beginning."

General Motors said last week that it would idle a plant in St. Petersburg and halt sales of its Opel brand and most Chevrolet models, all but abandoning the market damaged by fallout from President Vladimir Putin's annexation of Crimea from Ukraine.

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VW to build next gen Phaeton, even though it losses money & VW is slashings overall costs.

With Volkswagen having embarked on a big cost-cutting drive, industry experts are baffled why the "people's car" maker plans to spend millions of euros upgrading a money-losing luxury sedan.

The 76,000 euro ($86,000) Phaeton, a pet project of Chairman Ferdinand Piech, has never met VW's original sales target of 20,000 cars annually. Analysts say the upper-premium car, which cost more than 1 billion euros to develop and came out in 2002, should be axed.

But sources at VW told Reuters that the company is now planning a more advanced version of the Phaeton -- even though the first-generation car was ranked by Bernstein analyst Max Warburton as one of the three "most loss-making European cars of modern times."

The plans appear all the more perplexing to analysts as VW has pledged to make annual cost savings of 5 billion euros at its passenger-car brand by 2017, as the world's second-biggest carmaker by sales seeks to narrow the gap with global leader Toyota.

'Painful action'

Announcing the "efficiency program" last July, CEO Martin Winterkorn promised "painful action" to revive the core brand where profit margins have been languishing due to a proliferation of models and parts.

"It's no longer all about bigger, higher, further," the CEO told managers at a Dresden strategy conference in December. "Now it's about being leaner, faster, more efficient."

His comments echoed VW's plans to reduce the number of costly parts and drop some non-profitable variants from the German group's 310-model lineup as Europe's largest automaker shoulders costs of future growth and investments in lower-emissions technology.

Revamping the Phaeton will seems to contradict the CEO's cost-cutting drive, said Evercore ISI analyst Arndt Ellinghorst, adding that switching production of the model to VW's MLB modular platform could cost as much as 650 million euros.

"Economically speaking, it's the most irrational project," London-based Ellinghorst said. "Piech and Winterkorn simply cannot let go of their fondness for luxury products."

A new glass-walled factory, R&D outlays and low sales volume led VW to lose 28,000 euros on each Phaeton sold between 2002 and 2012, Warburton wrote in a September 2013 note.

Unfazed by the losses, VW aims to pit the next-generation model against the Mercedes' 80,920 euro S-class flagship, sources said, adding the car may hit dealerships in 2017-2018. A plug-in hybrid version is also planned.

VW confirmed it was planning a successor to the Phaeton but declined to comment on the details or costs. It also declined to comment on analysts' loss, cost and sales estimates for the existing version, but said the sedan helped to show off its technical prowess.

The company does not disclose sales data for individual brands, only production numbers, which show it produced 5,812 Phaetons in 2013 -- the most recent annual figures published.

High-end battle

Stefan Bratzel, head of the Center of Automotive Management think tank near Cologne, said another high-end luxury sedan may overstretch the VW brand, traditionally a mass-market division which in November released a more upmarket Passat.

A new Phaeton could also affect sales of VW's other premium offerings, especially the Audi's flagship A8 sedan, which may share MLB underpinnings with the VW-badged model, he said.

"It doesn't make much sense strategically," Bratzel said. "The business case is equally questionable."

A new Phaeton would struggle against its premium rivals, analysts say. Sales of the model will average no more than 11,900 cars a year in 2017-2020, up from 6,300 this year, according to estimates from research firm IHS Automotive.

That compares with annual averages of 85,000 units for the Mercedes S class, 64,000 for BMW's 7 series and 41,000 for Audi's A8 in the four-year period, according to IHS data.

Buyers will never warm up to the notion of an upper-premium sedan made by the "people's car" brand unless they get a huge discount, a former VW Group executive told Reuters.

"This is the inherent problem, which puts the car's price positioning and profitability at risk," he said.

The Phaeton is the brainchild of Piech, the mastermind of VW's global expansion and its former CEO, who is well known for outmaneuvering both rivals and allies.

Sacred project

A former Audi North American chief, Axel Mees, was forced to leave the company in 2004 after criticizing the Phaeton project and Piech in public, a source at Audi said.

Meanwhile, Michael Horn, VW's new U.S. boss is chasing a lofty sales target of 800,000 VW brand cars by 2018, more than double last year's tally.

Horn will be tasked with relaunching the next Phaeton in the U.S. after VW pulled the model from the world's biggest premium-car market in 2006 because of poor sales.

Horn struggled with the answer when asked by Reuters at the Detroit auto show what potential he sees for the model in the country.

"That's a dangerous question," he said. "It's an image bearer with no relevance for volume."

Volkswagen Group dips in November due in part to press releases of the new Passat.

The Volkswagen Passenger Cars brand delivered 5.59 (January-November 2013: 5.48; +2.0 percent) million vehicles to customers from January to November. “The challenging developments on markets worldwide – above all in Eastern Europe and South America – will continue for the remainder of this year. 

The Volkswagen Passenger Cars brand handled these challenges successfully during the course of the year, but was not entirely immune to their impact”, Christian Klingler, Board Member for Sales and Marketing for the Volkswagen Group and the Volkswagen Passenger Cars brand, commented in Wolfsburg on Monday. 

The brand delivered 508,400 (November 2013: 529,500; -4.0 percent) vehicles to customers in November. Klingler explained that one of the main factors affecting deliveries in November was the Passat model change, and added: “The new Passat has been enjoying a strong tailwind since it made its market debut two weeks ago. We are in a positive mood, given the model’s winning performance in numerous comparison tests plus the high level of orders received from all over Europe.”

The Volkswagen Passenger Cars brand delivered 1.54 (1.51; +2.4 percent) million vehicles on the overall European market in the period to November, of which 785,500 (746,800; +5.2 percent) were handed over to customers in Western Europe (excluding Germany). 

534,400 (516,900; +3.4 percent) customers took possession of a new model in the home market of Germany during the same period. Deliveries in Central and Eastern Europe continued to decline as a result of uncertainty in the region. 221,800 (242,300; -8.4 percent) vehicles were handed over to customers there. The company delivered 114,200 (142,700; -20.0 percent) models in Russia.

Volkswagen Passenger Cars delivered 533,400 (567,800; -6.1 percent) vehicles in the North America region. In the United States, monthly deliveries continued to pick up in November, confirming the trend from October. In total, Volkswagen Passenger Cars handed over 332,900 (373,700; -10.9 percent) vehicles to customers in the United States from January to November. 

Due to the downward market trend in the South America region, deliveries there in the period to November decreased to 605,300 (737,400; -17.9 percent) units, of which 492,200 (567,500; -13.3 percent) were handed over to customers in Brazil.

The brand reported an 10.6 percent increase in the Asia-Pacific region in the period to November, handing over 2.72 (2.46) million vehicles to customers there. 2.52 (2.26; +11.9 percent) units were delivered in China (incl. Hong Kong) during the same period.