Volkswagen woos BMW, Mercedes buyers in new upmarket push

By Andreas Cremer

HANOVER, Germany (Reuters) - Volkswagen's troubled mass-market brand is pushing upmarket again with a new flagship model a year after ceasing the flopped Phaeton luxury saloon in a bid to lift margins and revive its post-dieselgate image.

Volkswagen (VW), traditionally known for its range of practical saloons, hatchbacks and sport-utility vehicles (SUVs), on Wednesday unveiled the new Arteon fastback to woo customers who like upscale cars like BMW's 4-Series Gran Coupe or Mercedes-Benz's CLS coupe but at lower prices.

The four-door Arteon will go on sale in German showrooms next month starting at 34,800 euros ($39,111).

The world's largest automaker needs higher-margin models to help fund a strategic shift to electric and self-driving cars as it grapples with billions of euros in costs for its emissions scandal.

The Arteon, featuring adaptive cruise control and enhanced emergency braking and steering functions, resembles VW luxury brand Audi's A5 Sportback with its long wheelbase, extended hood and lowered roofline.

"Cars like this have until now been the domain of premium carmakers," VW brand chief executive Herbert Diess told reporters. "With the Arteon we are trying to gain a foothold in this business."

It's not the first time the VW brand has pushed upmarket. In 2002, it launched the executive Phaeton saloon which was axed last March after never meeting VW's original sales target of 20,000 cars per year.

VW aims to sell up to 40,000 Arteons a year worldwide, Diess said, about the same as the predecessor CC saloon which ceased production last October.

The Arteon is the latest example of a post-dieselgate product overhaul at the VW brand to revive profitability which has been lagging rivals such as PSA Peugeot Citroen and Toyota .

VW will present redesigned versions of the Polo subcompact, one of its all-time bestsellers, in June and the flagship Touareg SUV in September, after it launched an overhauled Tiguan compact SUV last year.

Research firm IHS Markit expects the German brand's new top-of-the-line model to beat sales expectations easily.

Deliveries of Arteons in core markets of Europe, China and North America may more than double to 81,172 cars by 2025 from 39,265 next year, IHS said.

By comparison, IHS expects sales of BMW's 4-Series Gran Coupe to plunge 16 percent to 40,562 models by 2025 while it sees sales of the Mercedes CLS jumping 10 percent to 23,856 cars.

IHS says China will account for about half of global sales of the Arteon, which will be built in VW's biggest market and at a factory in Emden, Germany.

($1 = 0.8898 euros)

(Reporting by Andreas Cremer; Editing by Susan Fenton)