The executive express: comfortable but stimulating, and just what a management type at the turn of the Millennium wanted to slip into, after a long day of interdepartmental team building and developing new management buzz words to confuse their colleagues.
It was a market that in the '80s had been cornered by German engineering. Mercedes-Benz and BMW retained a solid grip on the brief, though the '90s had seen them come under threat from Acura, Lexus, Infiniti, and cross-town rival Audi. A resurgent Cadillac and Lincoln were also taking aim, and Volvo and Saab had their loyalist fans.
The VW Group owned Audi, whose luxury sedans were gaining ground. It had also bought Bentley, and had a stake in sports car maker Porsche, which was rumored to be developing an executive sedan of its own.
Yet VW was worried.
BMW and Mercedes were expanding by moving downward. They ventured into VW Golf and Jetta territory with subcompact and compact cars like the 3-series Compact (1994), A-Class (1997), and upcoming 1-series (2004). Volvo, too, had its S40 compact sedan (1996), and was working on an even smaller car.
In response, Volkswagen would move upmarket. "It is logical and practical that we should fight them by moving in the other direction," VW CEO Bernd Pischetsrieder told Autocar.
Formerly CEO of BMW, Pischetsrieder knew a thing or two about premium cars. He was also beholden to the strategy begat by his tutor: VW Group chairman Ferdinand Piëch, a fearsome engineer who in the '80s had masterminded Audi's fight for parity with aerodynamics, "Quattro" four-wheel drive, and pioneering aluminum construction. The depth of engineering at Audi in this era was reflected in its slogan: Vorsprung durch Tehnik ("Progress through technology").
For Piëch, product was always the answer.
Piëch had taken the helm at a troubled Volkswagen in 1993, and had begun a radical transformation of the brand.
Volkswagen was best known for the Beetle. The world's best-selling car had been designed by Piëch's grandfather, Ferdinand Porsche. Although it had not been sold in Western markets for more than a quarter century, the value promised by this cheerful and affordable little car cast a long shadow.
In the early '50s, a Beetle had signified the penury or eccentricity of its owner. Yet so solidly was it built that the Beetle was quickly embraced by all who were impressed with quality and service.
That VW's most famous car had once been classless, and that Audi had shown that an infusion of technology could bolster a brand's status, were lessons not lost on Piëch, who began moving Volkswagen upward. By the end of the decade, VW's somewhat dowdy line-up would be replaced by cars that looked sharp and set new standards for interior design and presentation.
One quick glance was all it took to appreciate the tasteful, more premium look and feel. Piëch lifted the stature of erstwhile mainstream cars like the Golf, Jetta, and Passat. Infamous for sweating every last detail, he sought a higher breed of customer who could feel the difference. If the customer sees that we have flock-lined the glove-box, he once said, they will assume we have machined the cylinder head with the same care.
Piëch demanded closer panel fits and superior materials. VW doors shut with a thunk that recalled the build quality of the Beetle. Finely textured dashpads framed interiors that glowed electric blue and deep red. Volkswagen panel fits were the envy of the industry. Grab handles were damped, like those in far more expensive cars. "Instead of noisily slapping themselves back into position, they cinch themselves tight in slow motion, the way a cassette door opens on a good tape deck," marveled Popular Mechanics.
In 2001, Piëch's strategy looked to be working. Volkswagen sales in America had risen from less than 50,000 cars in 1993 to more than 350,000.
And so it was that Volkswagen launched a Passat with eight cylinders: the Passat W8.
The four-liter "W8" was the result of splicing two narrow-angle V-4 engines together. Volkswagen had used narrow-angle engines in its cars before, but this one had two more cylinders and was unique to the Passat. You might think of it as half a Bugatti Veyron's engine (another car for which Piëch was responsible).
The top Passat's exotic powertrain came with 4Motion four-wheel drive, which gave the car independent suspension—and ideas above its station. Here was a Volkswagen that would compete against the Mercedes-Benz E-Class and BMW 530i.
Available as a sedan or wagon, the $40k Passat W8 even offered a six-speed manual transmission for the driving involvement that enthusiasts craved. So equipped, a Passat W8 sedan hit 60 miles per hour in 6.8 seconds in the hands of Road & Track, running the quarter mile in 15.2s @ 130 mph. These were reasonable numbers for a car that was heavier than an enthusiast driver might like. Most buyers went for the automatic version which was considerably slower. Fuel efficiency was predictably low.
Despite the Passat W8's unique engine and impressive refinement, sales were slow. But in building it, VW was not simply hoping to shift a few more units. Brand image was the goal, and company research at the turn of the new century showed, perhaps optimistically, that VW's was now at near-BMW levels in Germany, even slightly ahead of its Audi sister.
Piëch was preparing the world for his pièce de resistance: the Phaeton.
With air suspension; up to 12 cylinders for more than 400 horsepower; several aluminum panels; and many bits shared with the Bentley Continental GT, this large VW sedan took on the likes of the Mercedes-Benz S-Class, BMW 7-series, and even the Audi A8 which shared its engines.
Driven all day at 186 miles per hour in temperatures of 122 °F, the Phaeton promised to maintain a constant 72 °F inside. At 190 mph, the hood did not quiver—even as the car was limited to 155 mph. "Volkswagen have spent a lot of time doing slightly irrelevant things," quipped Britain's Fifth Gear motoring show.
Phaeton was built in a beautiful new Gläserne Manufaktur "transparent factory" in Dresden. Constructed from a striking fusion of glass and steel, the facility functioned less like a conventional industrial plant than a sophisticated laboratory of craftsmanship. Within its walls, technicians donned white uniforms to assemble the Phaeton, working with deliberate care atop polished Canadian maple floors that transformed the manufacturing process into a refined, hushed display of human artistry.
By objective measures of features and quality, the Phaeton was one of the world's great sedans.
But as BBC Top Gear presenter Jeremy Clarkson put it, "To what question is the answer a £68,000 Volkswagen?" Surely, this was proof that there were "traces of humor in the Fatherland," he added.
VW was primarily targeted at the young, particularly in America. It had a long history of cars with character and originality. The Beetle and Bus had been fixtures at Woodstock and remained evergreen tributes to the idealism of youth and the young at heart. The Golf GTi had defined a segment, brushing away the creaky roadsters of a past generation with its modern combination of practicality and performance. VW had a credible counter-culture appeal that perhaps only Honda and Subaru, among Japanese competitors, could begin to match.
Yet the Phaeton was targeted at an altogether different audience. While its obsessive engineering made for the solidity and driving dynamics to which the VW driver aspired, its price and uncompromising demeanor were fit for an older, more affluent buyer: more concerned with status, less enthused by the idea of needing to explain their purchase at the office or the golf course, and certain to be put off by the sales and service experience of a Volkswagen dealership.
U.S. sales began in 2004, but barely registered until VW offered a $10k buyer incentive. A total of 1,433 were sold in its first year, declining by more than 40 percent in 2005. The Phaeton was pulled from America after the 2006 model year, with a grand total of 3,354 cars sold. To be fair, the car did better in less brand-conscious markets, notably China.
There's no doubt that the Phaeton cast a glow on the rest of Volkswagen's line-up. It drew attention to the perceived quality that was emerging at VW. That it shared not only a badge, but also several design elements with the much more affordable Passat, made it a more credible ambassador. As marketing campaigns go, this one was even quite affordable—even as VW lost $40k on each of the 84,000 Phaetons it ultimately built through 2016.
Be that as it may, Ferdinand Piëch appeared to have reluctantly accepted his lesson in the limits of brand extension. He repeatedly expressed interest in buying Alfa Romeo. The Italian marque had once built racing cars for the likes of Enzo Ferrari. Despite its many mistakes in the intervening decades, it held unquestioned—and, in Piëch's mind, underutilized—cachet.
Fiat, who owned Alfa, refused to sell.
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