A lot of automakers throw around the words "all-new" when they launch a fresh product, but it's not often we see something that fits the bill as well as the all-new 2011 Volkswagen Jetta. Not only was it a fresh take on VW's long-running compact in the physical sense, but it also represented a sea change in the automaker's positioning of the Jetta. Out the door went most of the Euro-sport premium-ish sedan business, and in came a low-priced, high-volume competitor that is more like a German Toyota Corolla.
It's been so far so good, too, as Jetta volumes have increased dramatically over the past couple months, no doubt gaining momentum from VW's ubiquitous "Great for the price of good" marketing efforts. But guess what? The price of admission to the new Jetta just took a $500 bump that puts the car on the wrong side of $16,000.
Luckily for Volkswagen'”but not so much for customers'”it's a perfect example of perfect timing.
VW Sales: Born from Jettas
The new Jetta, of course, was designed specifically to gain customers in the U.S. to help propel Volkswagen AG'”the parent company that owns VW, Audi, Lamborghini, SEAT, Bentley, etc., etc.'”to the No.1 spot on the global sales charts. And it's done it's job very well so far.
The Jetta sedan closed out last year with a 33.8 percent sales increase, but because it launched part way through 2010, even that performance only pulled the car's overall annual sales up about 8 percent and the brand's numbers up 20.3 percent. But both have caught fire in 2011. In the first four months of this year, the car's sales have risen 28.7 percent, 63.2 percent, 96.9 percent and 87.3 percent; at the same time, Volkswagen of America had its strongest sales months in seven years in March, then topped that with its best month in eight years in April.
The results must be heartening for VW execs, who are hoping to see the same kind of performance out of the all-new and similarly U.S.-friendly Volkswagen Passat when that car hits the road later this year'”and the sooner the better, for Volkswagen, since sales of the Passat in April slipped to ... zero.
(A quick digression here: Diesel-wise, sales of the Jetta TDI, including the Jetta SportWagen TDI, have advanced 41.1 percent, 49.8 percent, 43.9 percent and 53.6 percent in the first four months of 2011.)
The Price of Success
I'd say the new Jetta'”and its new positioning'”are both working out pretty well for VW, so I'm a bit surprised at the way this recent increase in MSRP is being handled. To be clear, I'm not surprised it's happening. The ripple effect from the tragedy in Japan is increasing production costs for all automakers, and VW isn't the only company that's been raising prices; GM, Ford and Toyota all have made news for recently doing the same thing.
But what's odd about the move at Volkswagen is that it appears limited to the Jetta'”specifically, the base Jetta S model. That is, the automaker is rolling out a higher MSRP on the only one of its models that uses a low MSRP as its key selling point.
$500 isn't a ton of money in this context'”it represents about a 3.1 percent price increase'”but it greatly changes the psychological landscape in the compact segment. Consider: Before, you could get into an all-new VW Jetta for just $95 more than an old-school Corolla; today, the Jetta starts more than $200 above the price of the all-new Ford Focus, which is positioned as one of the more premium entries in the segment. In fact, the Jetta is now a mere $30 away from being the most expensive high-volume compact on the market, trailing just the Chevrolet Cruze.
Now, the point isn't that the Jetta isn't "worth" $16,495, and I fully realize that not too many people are shopping for a base Jetta S anyway'”that's just the model VW is using to get folks into the dealership, following a traditional industry strategy of showcasing low-content base models to attract attention.
But isn't that exactly why Volkswagen shouldn't be raising its price?