Beyond the Beetle
A year ago, West Germany's Volkswagenwerk AG was fast running out of gas. In 1974 it had lost a staggering $313 million--more than any of the world's business organizations except Britain's government-owned National Coal Board (1974 loss: $316 million). There were widespread fears that world recession would compound the troubles enough to force a government takeover. Today VW is on the road back to prosperity. It will still report a loss--perhaps $100 million to $150 million--for 1975, but almost all of that was suffered in the first half. Managing Director Toni Schmuecker told TIME Correspondent Henry Muller that VW has been operating in the black since August and expects to show a profit in 1976.
New Models. Volkswagen's comeback partly reflects a boom in auto sales in Germany, where registrations last year were only a hair short of the record 2.15 million of 1971. But to get back into the black, the company had to slash labor costs and wean itself away from the product that made it famous: the Beetle. As late as 1972, VW made 1.2 million Beetles worldwide, selling a third of them to the U.S. Since 1971, revaluation of the deutsche mark has lifted the Beetle's price to around $3,500, from about $2,000, and the car's unchanging look has lost popularity. Today Volkswagen builds only a token 300 Beetles a day in Germany for sale to sentimentalists; another 1,800 are assembled in plants outside Europe.
To replace the Beetle and other slow-selling models, Volkswagen and its subsidiary Audi NSU have introduced five new cars in the past 3 1/2 years. Among them: the Rabbit--called the Golf in Germany, where it is currently the top-selling car. A success on both sides of the Atlantic, the Rabbit will be offered in Europe late this year with a 45-h.p. diesel engine. Since the oil crisis, diesel-powered cars, such as the bigger Mercedes and French-built Peugeot, have grown in popularity in Europe, largely because they use cheaper fuel, and less of it.
The strategy for propelling Volkswagen beyond the Beetle was laid out by the company's former managing director, Rudolf Leiding, who launched a $1 billion program to design new models in the early 1970s. When Leiding quit under fire a year ago, he was replaced by Schmuecker, 54, a 30-year veteran of Ford's European operation. One of Schmuecker's first moves at Volkswagen was to offer up to $6,000 tax-free to workers who would quit. Some 24,000, or 17% of the company's German work force, accepted. That cost VW about $65 million, but it has increased productivity. Explains Schmuecker: "This company has got to learn to build more with fewer people."
Schmuecker is also pushing to shift part of the company's assembly operations to the U.S. That would free VW's pricing policies from the vagaries of the exchange rate between the deutsche mark and the dollar, and thus prevent a further erosion of U.S. sales, which last year fell to 268,000 units from 335,000 in 1974. VW directors may approve plans for U.S. production within a few months, and Schmuecker confirms that company officials are scouting plant sites in the Detroit-Cleveland-Pittsburgh area. One site that may be receiving serious consideration: a Chrysler plant at New Stanton, Pa., that was built in 1969 but never used. To be profitable, any U.S. plant would have to turn out at least 200,000 cars a year. Schmuecker's sights are set higher. An American plant, he believes, could help catapult Volkswagen's U.S. sales back to 500,000 a year--a level of success it has not enjoyed since 1971.
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