Volkswagen Says U.S. Diesel Sales May Beat Forecast (Update1)

By Mike Ramsey

Sept. 9 (Bloomberg) -- Volkswagen AG said demand for the diesel-powered Jetta may be stronger than forecast since the car's Aug. 18 U.S. debut, a step toward bucking this year's industrywide sales slump.

``It certainly met and probably exceeded our expectations,'' Mark Barnes, chief operating officer of Volkswagen of America Inc., said today in an interview. He didn't say what the Herndon, Virginia-based unit projected.

August U.S. sales of the diesel Jetta totaled 2,417, helping pace a 29 percent gain for the model to 11,217. Last month's diesel share, 21 percent, should rise to more than 35 percent of the total by this month, Barnes said.

Diesel-powered vehicles are part of the plan by Europe's biggest automaker to reach 1 million U.S. sales by 2018. That would more than triple 2007's total for the Wolfsburg, Germany- based automaker and its Audi and Bentley units.

U.S. sales for Volkswagen's brands fell less than 1 percent through August, compared with an 11 percent industry decline. The full-year total should rise ``significantly,'' U.S. chief Stefan Jacoby said in a July 16 Bloomberg Television interview without giving a figure.

Volkswagen has focused on diesel engines, which can achieve a fuel-economy edge of as much as 35 percent over gasoline models, and doesn't have a gasoline-electric hybrid to rival the offerings of Toyota Motor Corp. and General Motors Corp. U.S. regulators say the diesel Jetta gets 29 miles (47 kilometers) per gallon in city driving and 40 mpg on the highway.

Diesel Fuel's Premium

Diesel fuel averaged $4.22 a gallon yesterday at U.S. pumps, a 15 percent premium over gasoline, according to AAA, the largest U.S. motorist group. The average year-to-date spread is 18 percent; for all of 2007, the average was 5.5 percent.

Sales of diesel models lagged behind hybrid vehicles through August, reversing 2007's pattern, said Mike Omotoso, an engine analyst at consumer research firm J.D. Power & Associates in Troy, Michigan.

Through August, diesels had 1.8 percent and hybrids had 3 percent of U.S. new-vehicle sales. By 2015, their respective market shares will be 10 percent and 7.5 percent, Omotoso said.

Overtaking Hybrids

``We expect the diesel market to grow and actually overtake the hybrid market over the next seven years,'' he said. ``We don't expect the spread between gas and diesel to continue.''

Diesel models fell behind this year because of the higher premium for the fuel over gasoline and a drop in sales of full- size pickup trucks with diesel engines, Omotoso said.

Volkswagen CEO Martin Winterkorn said yesterday at an event in Reykjavik that he sees a ``diesel trend'' in the U.S. Besides promoting diesels' fuel economy, Volkswagen is courting buyers by emphasizing the engines' longevity and the traditional higher resale value of the vehicles.

For the first time since 2003, Volkswagen's diesel sedans are certified to meet California's air-pollution rules, the nation's strictest. Barnes said 15 percent of the diesels sold in August were in California, a share that may increase.

The new Jetta's arrival marks the return of a diesel model offered in the U.S. from 1995 through last year, when Volkswagen halted sales to upgrade equipment to meet air-quality rules.

Owners of diesel Jettas qualify for a federal tax credit of $1,300 for fuel-efficient, low-emission vehicles. After subtracting the credit, the $21,990 base-model diesel Jetta costs $770 more than a similar gasoline-powered Jetta, spokesman Tom Wegehaupt said in an e-mail.

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

Last Updated: September 9, 2008 16:45 EDT

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