Volkswagen seeks higher margins with China-only luxury sedan

The Volkswagen logo is seen at the Frankfurt Motor Show (IAA) in this September 10, 2013 file photo. [Photo/File photo]

Volkswagen AG will launch a VW-badged luxury sedan designed solely for China next year in its pursuit of higher margins, said two people with knowledge of the plan, in a move that could put it in direct competition with its premium brand Audi.

The car will be based on Audi AG's A6, the country's top-selling luxury sedan, the people said, declining to elaborate on the vehicle's China-specific elements. The A6 in China has a longer body than A6s elsewhere, allowing more leg room and out-sizing many of its rivals.

The price of the VW premium sedan is undetermined, and nearing the A6's 383,000 yuan ($62,375) starting price would risk cannibalizing Audi sales. But Volkswagen, better known for small cars and family-oriented models, is drawn to Audi's margins. Volkswagen sells three times more cars than Audi globally, yet Audi earns more than double the profit of VW-branded cars.

"Volkswagen wants to boost its brand value, which is natural for any company seeking higher margins. But it's not easy," said Yale Zhang, managing director at consultancy Automotive Foresight.

"If Volkswagen's premium car is priced too high, people would go straight to Audi. If the price is not high, then what's the point?"

Volkswagen aims to replicate Audi's success in luxury vehicles at a time when a state crackdown on extravagance among public officials is creating demand for upmarket cars absent of marques typically associated with opulence.

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