Bloomberg News

VW Strategy Revealed in Lamborghini-Bentley SUV Rivalry

September 09, 2013

Lamborghini's Urus Sport-Utility Concept Vehicle

Lamborghini’s fight to salvage the Urus crossover project reflects VW’s system of carefully orchestrating competition among its 12 brands to keep them focused and hungry. Photographer: Nelson Ching/Bloomberg

Lamborghini’s development maestro, Maurizio Reggiani, resigned himself to weeks of sleeping on the shop floor after parent Volkswagen AG (VOW) pulled the planned debut of his SUV in favor of one from corporate cousin Bentley.

To save face and highlight the brand at the Geneva motor show, Reggiani had just two months to build an alternative model -- a convertible version of the flagship Aventador.

“For Lamborghini, if you don’t have ’wow,’ you have a problem,” said Reggiani, a Maserati veteran who’s been at the Italian supercar maker since 1995.

Lamborghini’s fight to defend its reputation as a dream factory -- and prevent Bentley from winning the race to build what would likely be the world’s most expensive sport-utility vehicle -- reflects VW’s system of orchestrating competition among its 12 brands to keep them focused and hungry. While most carmakers have multiple brands, none have as many as VW and none have been as successful at combining luxury vehicles with mass-market models.

VW showcased the breadth of those offerings today at an event to upstage competitors ahead of the opening of the International Auto Show in Frankfurt -- the industry’s largest event in Europe this year. Brands from pragmatic Skoda to excessive Bugatti presented their driving visions at an arena with space for 5,000 spectators which included a performance from the electronic pop duo Pet Shop Boys. At the center of the action was Chief Executive Officer Martin Winterkorn.

No Windshield

“The biggest risk to achieving our goals is losing focus on what got us here, and that’s making the best cars on the market,” Winterkorn, 66, said in an interview. “You can only manage a multi-brand strategy like ours when you have the right technology, processes and people behind it.”

For VW’s brand chieftans, the CEO -- a pure-blood car guy and protege of 76-year-old Chairman Ferdinand Piech -- is final judge, jury and executioner of the German company’s product plans. In the case of Bentley and Lamborghini, winning Winterkorn’s approval would bring more than 100 million euros ($131 million) in development money and bragging rights.

Reggiano’s plan to make sure Lamborghini still had something to show in Geneva last year resulted in the J, a raging 700-horsepower ragtop supercar that even dispensed with a windscreen. Featuring a rear-view mirror rising from the hood like a periscope and seats made from a lightweight fabric called carbon skin, the one-off vehicle was eccentric and extravagant - - the perfect stopgap for the delayed SUV push.

Picnic Hampers

Some 1,000 miles away from Lamborghini’s black-stone headquarters in a region known as Terra dei Motori for its cluster of exotic carmakers, Bentley was under pressure of a different kind: being the focus of attention in Geneva.

The Bentley EXP 9 F concept, which debuted in March 2012 in place of the Lamborghini SUV, was a hulking bulk in light-blue metallic paint. It had flourishes like picnic hampers for polo-ground tailgating, 23-inch wheels and gaping turbine-like air intakes. It was coolly received by the automotive press -- leaving room for Lamborghini to still steal the spotlight.

This independence, along with the right amount of control from headquarters in Wolfsburg, is key to VW’s goal of overtaking General Motors Co. (GM:US) and Toyota Motor Corp. (7203) as the world’s largest carmaker by 2018. While the group provides centralized oversight and standardized parts and processes, it’s up to the semi-autonomous marques to come up with business plans that make financial sense, whether it’s for Porsche speedsters, bread-and-butter VW hatchbacks or sleek Audi sedans.

Coveting Alfa

So far, it’s hard to argue with that strategy. Since Winterkorn took charge in 2007, VW’s annual revenue has surged 84 percent to 193 billion euros, while operating profit has gained more than fivefold. Over the same period, Toyota’s sales climbed 30 percent. GM went into bankruptcy reorganization in 2009, shedding brands that had lost focus such as the Swedish Saab nameplate.

VW’s challenge in keeping all those badges distinct is growing. Around 60 new and revamped vehicles are due this year alone, adding to a range of 280 cars, SUVs, vans and trucks. VW is also considering adding a budget brand in Asia, while Winterkorn and Piech have both expressed more-than-playful interest in Fiat SpA (F)’s Alfa Romeo.

“Having so many brands can be an advantage, but there’s also the risk of an Audi being perceived as a Skoda on steroids,” said Stefano Aversa, co-president of consultancy AlixPartners. VW needs “to continue to strike a balance between synergies and diversification.”

Leather Craftsmen

VW isn’t immune to making indistinct models. The Seat Mii and Skoda Citigo are clones of the VW Up! city car, while the Seat Alhambra minivan is a re-badged version of the VW Sharan. Winterkorn argues that the differentiation in these commoditized segments is sufficient, while the bar is much higher at the upper end.

“You can only slice the market so thin,” said John Smith, a former GM executive responsible for restructuring Cadillac in the late 1990s and involved in winding down some of GM’s brands. “Having a brand -- no matter what the volume is -- costs you money.”

VW’s approach includes maintaining unique identities. Bentley is based in Crewe, England, where wood and leather craftsmen have been fashioning dashboards for decades inside a rambling yellow-brick landmark of British industry. Lamborghini is in Sant’Agata Bolognese, the same spot in northern Italy where Ferruccio Lamborghini started making cars in the 1960s.

Kung-Fu Dancers

Brand chiefs like the wiry cosmopolitan Stephan Winkelmann at Lamborghini and Wolfgang Schreiber, the engineering mastermind at Bentley, vie for projects along with counterparts from VW, Skoda and Seat. An elite crossover that will end up being little more than a rounding error in VW’s push to sell more than 10 million vehicles has to clear the same hurdles to get to market as the top-selling Golf.

“The technological and economic criteria for every new project are the same,” Winterkorn said. “But at the end of the day it’s also a gut feeling on whether it’s the right thing for the brand and the group.”

Ideas for new models like the Lamborghini and Bentley SUVs start out in VW parlance as “white clouds.” The clouds turn “green” when the company’s product planners, a group of about two dozen top executives and developers, see enough merit to fund a prototype and conduct market studies. Both the Lamborghini and Bentley crossovers were at that stage last year.

Following the Geneva delay, Lamborghini showed off its Urus SUV a few weeks later in Beijing, its angular red-metallic form slinking onto a stage accompanied by kung-fu dancers in the city’s so-called Water Cube. It didn’t sway Winterkorn.

Iberian Sun

Last summer, the CEO, who has spent about half his life working at Volkswagen, took an active interest in the Bentley project. He invited new brand chief Schreiber, a former developer of the Bugatti Veyron supercar, to a closed-door viewing of the vehicle in Spain.

Beneath the unforgiving light of the Iberian sun, all the car’s imperfections were evident, but for the two auto guys so was its potential. That high-level support gave the Bentley an edge. So when Schreiber formally took over in Crewe last September, it was full speed ahead, with as much as one third of the British automaker’s staff involved in the project.

The next critical step was the presentation to about three dozen representatives from engineering, production, marketing, finance and personnel who pick over new and ongoing development projects. The business case includes a list of components broken down into “red” parts for new development and “green” parts for standardized components -- the more green, the better.

Rambo Lambo

In Bentley’s favor was that the model would share components with the Audi Q7. Its case was also bolstered by the success of U.K. rival Jaguar Land Rover, whose Range Rover models have proven that a market for upscale British SUVs exists, even if entering the segment would break with Bentley’s tradition of burly sedans and coupes.

Down in Italy, demand for a super-performance crossover is harder to prove. Lamborghini failed two decades ago with the LM002 off-roader -- the so-called Rambo Lambo. At a meeting in August 2012 at VW’s sprawling Wolfsburg headquarters, the members of the product-strategy committee questioned whether Lamborghini could handle a new model while also revamping its flagship sports cars.

Two months ago, Winterkorn and the others in the committee weighed in with backing for Bentley, giving it the green light to build the world’s most powerful crossover. Reggiani’s long nights may not have been in vain, however. The Urus project remains in VW’s pipeline and could still win approval.

Dashboard Feel

The clock is now ticking for Bentley, which has three years to develop and test its SUV and make sure it’s worth the roughly $180,000 it’s likely to demand. And before customers get their hands on it, the vehicle will have to win the approval of quality-obsessed Winterkorn.

The CEO personally sweats the details, like inspecting chrome components for the Passat in the U.S. to ensure the shine was identical on all pieces throughout, and test driving the car seven times before clearing it to go to market.

With each new model, Winterkorn sits in the driver’s seat and closes his eyes, feeling the steering wheel, seats and dashboard to be sure that a brand remains identifiable without the visual cue of the badge.

“You are very happy and proud for about five minutes,” Schreiber said of getting the go-ahead to build a new model. “Then you’re already thinking about all the work that needs to get done to reach all the targets. But those five minutes are great.”

To contact the reporters on this story: Chris Reiter in Berlin at creiter2@bloomberg.net; Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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