Volkswagen’s Solution to Seven Years of Losses Is Another SUV

Volkswagen AG is looking to stem seven years of losses in South America by padding out its SUV lineup, betting it will command better margins and be more resilient through the region’s many ups and downs.

VW will produce the Taos sport utility vehicle at its Argentina plant for South American markets and in Mexico for the U.S. Its launch around midyear will mark the culmination of roughly $2 billion of recent investment the German automaker has announced for operations in Argentina and Brazil.

The commitment to the region contrasts with Ford Motor Co.’s decision early this year to cease manufacturing operations after a century in Brazil, shuttering three plants and terminating about 5,000 jobs. VW also has a rich history in the nation, having established its first foreign production site in Sao Paulo in the 1950s after the government restricted imports. Brazil was for a time the company’s third-largest market, after China and Germany.

Ford pioneered the compact SUV segment when it launched the EcoSport in 2003. But by the end of that decade, other automakers started to replicate its approach to making more money off small vehicle platforms by using them to underpin roomier crossovers that command better pricing.

Almost all automakers that operate in the region now offer SUVs. In Brazil, roughly 37% of January and February sales were SUVs, up from about 27% in the year-earlier period, according to dealers association Fenabrave.

VW is trying to break even in South America in the U.S. this year after persistent losses. The company said in a strategy update last week that it can now post a profit in North America even with a 15% decrease in sales, and in South America with as much as a 30% drop in volume.

VW’s investment in the region has been paying off on the sales charts. Its namesake brand’s market share in Brazil jumped to 16.8% last year from 12.5% in 2017. It’s now second in the rankings, behind Chevrolet, according to Fenabrave.

©2021 Bloomberg L.P.

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