Volkswagen Up to be axed

Australia's record-low new-car prices have claimed their first casualty -- and it's from an unlikely brand. Volkswagen is poised to stop selling the Up city car, at $13,990 the cheapest European on sale locally.

The Up has been crushed by the weight of Japanese competition in the Light Car class which have limboed to new lows because the Yen being has been artificially devalued over the past 12 months. When the Volkswagen Up went on sale locally in September 2012 it matched the competition on price, but it has since been undercut by an $11,990 Suzuki Alto and $12,990 Mitsubishi Mirage, among others.

In Australia, sales of the Up have failed to meet expectations despite the car winning numerous awards, including the World Car of the Year. Volkswagen has sold only 2000 Ups in the past 18 months. So far this year sales are down by a staggering 92 per cent: just 53 cars have been delivered in the first three months of 2014.

Volkswagen Australia has told dealers that the Up will no longer be imported, and once the current stock sells out the model will disappear from Australian showrooms. Carsguide understands there are also no plans to re-introduce the model locally as a Skoda, Volkswagen's sister brand.

Volkswagen Australia boss John White would not confirm the local extinction of the Up, however he has foreshadowed a clean-out of the Volkswagen model range. "Sales aren't where we want them to be on the Up," said Mr White. "It's a choice we have to make."

He said Volkswagen Australia was reviewing the range of cars it sells locally. "Part of the strategy we are adopting is that we want to streamline and de-proliferate our line-up," he said. Mr White said the Up was brought into Australia "for an entry-level statement" and a sales driver.

But the main stumbling block for the Up has been the lack of an automatic transmission, which accounts for 80 per cent of sales in the class. "I don't think we can do enough volume that is profitable for dealers and for us in the long term," said Mr White.

Since launch, the Up has rarely been without a "drive-away" promotional offer. Currently, Volkswagen is advertising a low-interest finance rate on the car, with repayments of just $8 a day as well as $500 cash back. "That low end of the market is very aggressive," said Mr White.

Meanwhile, Volkswagen has also told dealers it will not take the facelifted Scirocco R performance hatch, bringing a premature end to that model. Its void will be filled by the just-released Golf R. The stylish Eos convertible also has no immediate successor once it fades from view in the coming months. Instead, Volkswagen buyers looking for a convertible will only have the Golf cabriolet to select if they're after a sun-lover.

While Volkswagen's Up may be struggling in the Light Car class, the Golf is set to make another splash in May and June, with dealers expecting big shipments of the base model Golf to coincide with the re-introduction of $22,990 drive-away pricing.

When the new generation Golf was launched in April 2013, it started with a $24,990 drive-away price. That was trimmed to $23,990 drive-away in September 2013 and then cut even further to $22,990 drive-away in November 2013, when sales took off.

"When we hit the sweet spot with that car at $22,990, sales spiked and it put us more in the mainstream with the Mazda3 and the (Toyota) Corolla," said Mr White. "We will make sure we have a competitive entry point to advertise (the Golf) in the coming months."