Sheepish Rabbit

New model from Volkswagen

The Volkswagen Rabbit, introduced in 1975 as the replacement for the homely but lovable Beetle, has never won as secure a place in the hearts of American car buyers. Last week Volkswagen dealers began showing off a racy new Rabbit model called the GTI that is designed to put some hop back into the elderly car line. Mixing its animal metaphors, Volkswagen describes the GTI as "a wolf in sheep's clothing." In fact, it is a slickly styled jack rabbit, with new trim and a bigger engine, that is designed to be driven like a sports car.

At about $10,000 fully equipped, the GTI sells for three times as much as the original $2,995 Rabbit. The base price of interim Rabbits climbed steeply--more than $400 annually on average--which is the biggest reason Volkswagen's U.S. sales have slumped from 570,000 (nearly all Beetles) in 1970 to about 175,000 (including 100,000 Rabbits) this year.

Volkswagen has also been slow to react to changes in the U.S. car market. After keeping the Beetle in production for 30 years, it confidently expected to be able to sell Rabbits until 1990. But competitors were quick to copy the Rabbit's front-wheel design and efficient use of interior space. Today's car buyers can choose from a number of similar-looking makes, including the Mazda GLC, which sells for $5,295,'and Chrysler's $5,840 Plymouth Horizon and Dodge Omni. Those base prices are well below the $6,290 for the standard Rabbit. In a desperation move last May, Volkswagen cut the sticker price of the Rabbit by up to $625. Not only did sales remain weak, but a company executive conceded that the firm was losing about $600 on every car it sold.

Instead of stressing economy, Volkswagen has decided to make a virtue of the car's higher price. In a new advertising campaign, it stresses the Rabbit's made-in-Germany heritage of quality engineering and reliability. Admits James Fuller, vice president of Volkswagen of America: "We are aiming at the customer of higher expectations." Whether that strategy will work remains to be seen. For the first nine months of this year, Rabbit sales plummeted 43.4% below 1981's figure, and Volkswagen's share of the U.S. auto market stood at a meager 1.9%, well below the 5% won by the Beetle in the 1970s. In September, former General Motors Executive James McLernon resigned as president of Volkswagen of America and was replaced by Noel Phillips, a marketing executive from South Africa. With sales running far behind projections, the company has canceled plans to build cars at a second U.S. plant in Sterling Heights, Mich., and has put the $300 million facility, which it never used, up for sale.

Many auto industry observers believe that Volkswagen needs a replacement for the Rabbit, a move Industry Analyst Maryann Keller of Paine Webber Mitchell Hutchins terms "essential." Despite rumors that a new model is on the way, company officials deny such plans. Insists Carl Hahn, chairman of Volkswagenwerk AG, the parent company: "We don't want to offer the consumer a new shape every day." Yet as long as Japanese and U.S. automakers can nibble into Volkswagen's market by behaving like sheep, it will take more than a wolf in sheep's clothing to revive the company's sales.

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