VW Sees New Losses in U.S.

Fresh new products such as the Jetta and the Passat won't be enough to wipe out the red ink at Volkswagen of America. Hans Dieter Poetsch, Volkswagen AG's chief financial officer, confirmed in an interview at the North American International Auto Show that VOA will post $1 billion operating loss in 2004. Volkswagen of America will lose money again in 2005 because of the heavy pressure from the depreciation of the U.S. dollar. The losses for will be substantially smaller as the products bring in new customers.

The rising tempo of production of the Jetta at VWOA's plant in Puebla, Mexico also will serve as natural hedge against the fluctuations in the value of the dollar, which has made it more expensive for companies such as VW that do business in euros to import cars into the U.S. "It has been difficult with the depreciation of the dollar," said Poetsch. The fact the Jetta and the Passat were both at the end of their life cycle in 2004 only compounded the problem and forced VWOA to enter the incentive war - something it had always vowed not to do.  "We had a great problem in the market place. We had to do something," he said. Thus, VW's incentives went from virtually nothing in the last quarter of 2003 to roughly $2,700 per vehicle at the end of the fourth quarter of 2004. Poetsch, however, said incentives will drop this year and as the incentives decline, so will VWOA's losses. The fact that incentives across the industry have stopped increasing is an encouraging sign and indicates that all manufacturers will spend less on incentives in '05 even if industry-wide sales are essentially flat.