Cigar Aficionado

Volkswagen's Luxe Affair

Volkswagen shed its “people’s car” image with luxury marques, and now debuts a fleet of high-priced rides from its core brand

It has the look of a crystal cathedral, a temple of glass and steel standing in sharp contrast to the baroque ruins of old Dresden. With its palaces and cathedrals of limestone and marble, that ancient city was blasted into near-oblivion by Allied bombers in the final days of the Second World War and is only now being rebuilt. Yet the Glaserne Manufaktur is a fitting metaphor, not just for Dresden’s slow rebirth, but for the company that has built this “Transparent Factory.” Had it not been for the keen eye of a British officer and the counterculture tastes of American youth, Volkswagen also would have vanished beneath the war’s rubble.

Envisioned by a madman and crafted by a mechanical genius, Volkswagen AG has traveled a long, strange road that few automakers have even approached. Conceived as a car to put the German masses on wheels, VW is now one of the world’s largest luxury manufacturers, with a collection of enviable marques under its control, including Audi, Bentley, Lamborghini and Bugatti. And now, with the new plant in Dresden, Volkswagen intends to drive its core brand upmarket. But is the world ready for a luxury car for the masses?

You don’t need a degree in manufacturing to realize that the Transparent Factory isn’t your typical car plant. Tour guide Doreen Kretzschmar likens it to “a sitting room,” and with its massive walls of glass and floors of polished Canadian maple, it’s as much art as assembly line. Indeed, the Glaserne Manufaktur serves double duty as both showroom and production plant for the new Phaeton luxury sedan. Potential customers are invited to stop in for a visit. They can begin by dining in a four-star restaurant, then retire to the high-tech showroom to choose leathers, woods and paint colors and watch as their car is constructed by a sophisticated virtual reality system. Insert a digital portrait and they’ll drive up to world landmarks, such as Stonehenge or the Eiffel Tower.

Once the order button is pressed, a complex dance is set into motion. The body of a new Phaeton is stamped and welded together at a plant 100 miles away—the same facility that produces the body for the new Continental GT, which is built by VW’s British subsidiary, Bentley. Smaller parts are marshaled at a warehouse just outside Dresden, then delivered on a special trolley line.

The Transparent Factory’s 250 workers only handle final assembly. Unlike a traditional automotive plant, where jobs are completed in cookie-cutter fashion every 50 to 60 seconds, each employee will spend up to a half hour on a single vehicle, carrying out as many as 100 different tasks. State-of-the-art systems improve ergonomics and reduce defects. It is, declares plant boss Manfred Saaketo, “the most modern manufacturing [operation] in the world.” Maybe so, but it won’t win any awards for efficiency. Even on two shifts, daily output is a meager 30 to 40 cars, barely what a single line at VW’s home plant in Wolfsburg produces every hour like clockwork.

As each Phaeton is completed, it is shuttled automatically to a towering glass silo where it will wait for a transport—or a customer can pick it up. Indeed, a sizable portion of buyers do visit the plant, either to place their orders or to take delivery.

With a price tag starting at $65,900 and running to $87,890 for the top-line model with its unusual W-12 engine, the Phaeton is by far the most expensive vehicle Volkswagen has ever produced. The “base” model is $20,000 more than the lavishly equipped Touareg sport-utility vehicle and nearly twice the price of a fully loaded Passat W-8. And it’s a far cry from the $1,500 Beetle that became an icon for American youth in the ’60s, in the process opening the door to affordable imports.


Quirky and idiosyncratic, the Beetle may be the only positive legacy of the Third Reich. The word “Volkswagen” translates into “people’s car,” and in 1934, that’s precisely what Adolf Hitler and the German Automobile Manufacturers Association had in mind. Desperate to shake off the Depression and hoping to put his country on wheels, the Nazi leader turned to Ferdinand Porsche, a man more often associated with the sports cars that bear his name.

Porsche produced a series of prototypes, the very first bearing the basic shape that would remain in production for nearly seven decades. The first car rolled off the assembly line in 1938, the Nazi propaganda machine pulling out all the stops to promote the accomplishment. “They really knew how to stage things. SS troops lined the road, along with all sorts of German military hardware. Propaganda minister Joseph Goebbels spoke and then Hitler, who gave a speech about bringing the car to the German people,” recalled Gordon Wilkins, a British journalist who had the distinction of being the only man to attend the launch of both the original Beetle and the car reborn nearly 60 years later. That first car “was pretty crude, but the target price was about the same as a motorcycle with a sidecar.”

It likely would have been a stellar success, Wilkins believes. But after building only the first few of what was then known as the KdF—short for Kraft durch Freude, or Strength through Joy—the plant was converted to war production. By the time the Allies fought their way into Berlin, a two-hour drive to the east, Wolfsburg was in ruins. What was left was actually offered up to the Ford Motor Co., but then chairman Ernest Breech quickly decided “it wasn’t worth a damn.”

That might have been the end of it but for a British officer posted to Wolfsburg during the occupation. Digging through the rubble, Maj. Ivan Hirst found the one KdF that survived and liked what he saw. Assigned to help restart the German economy, Hirst used the car as a model to relaunch production. It took some tweaks and upgrades. The car’s primitive cable brakes, for one thing, were replaced with a hydraulic system. Within months of V-E Day, the assembly plant started to operate again. By October of 1946, the 10,000th car had rolled off the line.

The first VW reached the United States in 1949, and the initial response was indifferent. After all, in those postwar years, American motorists wanted bigger, better and more lavish automobiles. So that first year, U.S. dealers sold just two of VW’s cramped little econoboxes. But it wasn’t long before the car found a cult following. In 1950, volume jumped to 328, and by 1959, it was up to 97,000.  By then, the car was officially known simply as “the Volkswagen,” though to fans, it was the Bug or the Beetle, the name VW would officially adopt only years later.

Cute, cheap and simple to operate, the Beetle inevitably clicked with the counterculture. It helped to have an irreverent ad agency  (Doyle Dane Bernbach) rolling out some decidedly unorthodox advertising. By 1968, when the Beetle hit its peak, sales had soared to 423,008, 5 percent of the U.S. auto market, and at the time the most popular import ever. (Worldwide, Beetle sales peaked at nearly 1.2 million annually.) But Volkswagen eventually undermined its own success.


The twin oil shocks of the 1970s forever changed the American automotive market. The Beetle made it hip to own an import, especially among Baby Boomers who saw Detroit’s big gas-guzzlers as symbols of the status quo. But while the Beetle maintained a hard-core following, it steadily lost sales to more sophisticated Asian competitors like the Honda Civic and Toyota Corolla. They weren’t as cute, but they were more modern, roomy and even more fuel-efficient.

Desperate to strike back, Volkswagen began phasing out the Beetle in favor of the more up-to-date Rabbit—known as the Golf outside the United States. The German automaker even built a new plant in Westmoreland, Pennsylvania, the first of the so-called “transplants,” which today account for more than 20 percent of U.S. motor vehicle production. But the Rabbit wouldn’t run. At least not for long, and VW fell into a downward spiral. In 1988, the automaker closed the Westmoreland plant, and by the time it hit bottom five years later, VW sales in the United States would tumble to less than 50,000, a devastating 90 percent decline.

The situation was equally grim for sister brand Audi. Stung by false accusations of a safety defect, Audi saw its U.S. number plunge from 74,000 to just 12,000 in barely six years. “In 1993,” confided recently retired Volkswagen chief executive officer Ferdinand Piech, “we were very close to leaving the American market.”

Things weren’t much better overseas, where Volkswagen was on a fast trip to nowhere, its sales stagnant, at best, its balance sheet plunging deeply into the red. But 1993 proved a fateful year, control of the struggling company shifting to the gaunt, thin Piech, the Austrian-born grandson of Ferdinand Porsche. With intense blue eyes that seldom blinked, Piech was a driven man, exuding an aura of intimidating power. An engineer by training, he was determined to reverse VW’s decline with a take-no-prisoners strategy that brooked no opposition. When asked how he’d respond if an engineer told him he couldn’t deliver, Piech’s answer was simple: “I fire him. And I tell the person who replaces him that he will be fired, too, if he doesn’t do what he is told.” Before the exodus ended, Piech had replaced virtually the entire VW management team.


You won’t find roller coasters and Ferris wheels at the Autostadt theme park; no giant mice posing for pictures with the kids. This definitely isn’t Disneyland. The name, in German, means “auto city,” and that’s long been the appropriate nickname for Wolfsburg, Volkswagen’s world headquarters, and perhaps the ultimate company town. In just three years, the $450 million Autostadt has become one of Europe’s most popular—if unlikely—theme parks, drawing visitors from all across the continent.

Autostadt is part museum, where visitors can trace the evolution of the automobile, from the first, crude horseless carriages to today’s 200-mile-an-hour supercars. But like Dresden’s Glaserne Manufaktur, it’s also part showroom, providing a place for each of the automaker’s many brands. That list grew exponentially under Piech, who inaugurated the most costly and aggressive expansion program in Volkswagen history. There was the Spanish brand, Seat, and the Czech Skoda, both aimed at entry-level buyers. At the other end of the automotive extreme, Piech purchased the struggling Italian sports car manufacturer, Lamborghini, along with rights to the once-prized Bugatti marque. Never one to avoid a fight, he entered into a bitter bidding war for Britain’s Rolls-Royce Motor Co. A Solomon-like settlement left Volkswagen AG with sporty Bentley, while Rolls fell into the hands of BMW.

Add in the Audi brand, and it makes the people’s carmaker one of the industry’s biggest producers of luxury vehicles, especially in the stratospheric segment starting at $150,000. The Bugatti Veyron will set a buyer back a cool million.

Piech wasn’t ready to abandon the automaker’s roots. He approved plans to resurrect the Beetle with a new design that captured the essence of the original in a more modern package. But the New Beetle is no econocar. And everything that’s been added to the Volkswagen division lineup over the last decade has been designed to push the brand upmarket. But if products like the Passat W-8 and Touareg are the stepping stones in that strategy, the Phaeton is Volkswagen’s leap of faith.

While VW engineers were clearly intent on setting their own standards, there’s no question they kept a close and nervous watch on what was happening in other parts of Germany. The automaker chose two of the toughest targets, the Mercedes-Benz S-Class and BMW 7 Series, the benchmarks by which all luxury competitors are measured.

In the Phaeton’s case, the sedan measures 203.7 inches, nose to tail. The design is classically handsome, if reserved, with a long hood, a gently curving roofline and a solid stance intended to suggest that Volkswagen, as much as a Phaeton owner, has arrived. The interior is lavished in chrome and wood, that genetically primed symbol of automotive status. There are plenty of high-tech touches, from the infotainment system, with its DVD player and navigation computer, to the slick climate control system, which lets each occupant choose his own settings. Set low, the system is draftless, but turn up the fan and motorized louvers swing open burl-wood covers to reveal the air vents. There’s even a power shade for the sunroof. A number of the Phaeton’s features, including center stack and steering wheel controls, are shared with the new Bentley Continental GT.

Power-train refinement is the heart of a German luxury car, and the Phaeton is no exception. The sedan is being offered in the United States with two engine options, a W-8 or a W-12. And, no, that’s not a typo. Instead of organizing the pistons into twin banks, VW has crafted an unusual, four-bank layout shaped like a W. We’ll leave it to engineers to debate the merits of that design, but the results are solid and respectable.

This is a heavy car—just over 5,000 pounds with the W-8—yet the smaller engine delivered reasonable acceleration during a cruise up the autobahn from Dresden to Berlin. The standout is the 6.0-liter, 12-cylinder power train. It’s so quiet you might be tempted to crank the engine twice. Full throttle, this 420-horsepower engine rolls out a deeply resonant burble, the speedometer rapidly climbing to speeds that would earn you a trip to the magistrate here in the United States. Both engines are paired with Volkswagen’s 4Motion all-wheel-drive system, which proved surprisingly stable at autobahn speeds, despite a steady rain.

Yet after a couple days behind the wheel, you’re likely to feel that the Phaeton is still a work in progress. Some of the high-tech features, such as the drive-by-wire throttle, feel as if they’re still being fine-tuned. And the car tends to dance a bit more than you’d expect on rough pavement. Considering the price tag, these quibbles might seem modest, but there’s also the subject of that emblem on the grille.


“The only thing some people think is wrong with [the Phaeton] is the VW badge,” complained Volkswagen AG board member Jens Neumann. Though he insisted “we will build this brand up the way we built up Audi,” he admitted it’s going to be a “long journey” trans-
forming the image of Volkswagen. And a difficult one. The high-line Passat W-8 hit the market with a dull thud, and despite strong reviews, sales of the Touareg SUV have yet to catch fire. During its first year on the European market, the Phaeton fell substantially short of expectations as well. Responding to reports that the project is deep in the red, U.S. marketing chief Frank Maguire countered by saying, “That’s not the purpose. Initially, this is…about positioning the brand.”

Privately, senior VW officials acknowledge they’d have liked more time before launching Phaeton in order to “step up the ladder,” in the words of one, with products aimed a little bit lower in the luxury spectrum. That’s a critical challenge for Piech’s successor, former BMW CEO Bernd Pischetsrieder. Among the products reportedly under development is a sedan aimed at the likes of the Mercedes E-Class, as well as the A6 from VW sister division, Audi. That’s part of the problem. Though VW officials insist they’re aiming at different customers, products like the Phaeton threaten to cut into demand for the automaker’s own Audi brand.

There are other challenges for Volkswagen to overcome. The automaker scores high on the J.D. Power & Associates APEAL study, which focuses on “things gone right.” Today’s VW buyers “place more value on styling, ride and handling, and less on quality” suggests senior analyst Brian Walters, but in the luxury segment, they expect it all. That’s a problem considering Volkswagen lags in the lower third of all brands in Power’s latest Initial Quality Survey, which measures “things gone wrong.” After succeeding Piech last year, one of Pischetsrieder’s first steps was to appoint a quality czar.

It won’t be the first time VW has had to turn things around. The automaker has worked its way through plenty of challenges since Ferdinand Porsche penned the design for the first Beetle prototype. But with the Phaeton, Volkswagen is aiming to transform not only its product line but the image embodied in its very name. v


Paul A. Eisenstein publishes an auto magazine on the Internet at