VW's brilliant new world car has one little problem

October 17, 2012: 6:55 AM ET

The world's largest car company is about to unleash something few automakers have been able to: a vehicle that can be sold around the world, profitably. But will it sell in America?

By Doron Levin, contributor

The previous generation of Volkswagen's Golf.

FORTUNE -- The seventh generation Volkswagen Golf hatchback -- a car that American baby boomers knew in its early days as the misbegotten Rabbit -- goes on sale in Europe in two weeks, a year ahead of its debut in the United States.

VW is hoping American carbuyers will be more receptive to the new Golf, since hatchbacks have had to fight the outmoded stereotype that they're little more than chopped-down gas misers. VW, a carmaker in the midst of a growth spurt in the U.S., is aiming for the new Golf to be a big seller, a respected member of a model lineup anchored by the larger Jetta and Passat.

In the next few months VW also will reveal how and where it will manufacture Golf for North American dealers. The new model is the first to employ VW's modular MQB architecture, developed to underpin a slew of models and vault the carmaker to its goal of No. 1 worldwide in terms of sales, and perhaps in profitability, by 2018.

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Will it work? "Younger American buyers today are more open-minded and skewed toward European tastes," says Jesse Toprak, an analyst for the TrueCar automotive buying website. "Back in the 1970s people saw hatchbacks as basic transportation. Cars like the Chevrolet Chevette, Dodge Omni and the Rabbit won't bring back many positive memories," he adds.

VW manufactured the Rabbit at a factory in New Stanton, Pennsylvania between 1978 and 1984. The automaker threw in the towel when sales of that variant lagged, a victim of poor quality and cheap materials. But VW has persevered, making Golf one of the best-selling global models of all time, a rival to Toyota's (TM) Corolla, through six generations and 38 years of production.

Joe DeMatio, senior editor of Automobile magazine, argues that "your average American still equates hatchbacks with cheap economy cars." It is, he goes on, really difficult to erase this from the American psyche. "Hatchbacks were something you drove in high school and college until you became an adult and could afford a real car. It's a shame, because they are so incredibly useful."

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In fact, hatchbacks in recent years have accounted for 5% to 7% of the U.S. market, according to Edmunds.com, an automotive website. But the number of hatchback models has been rising to 42 in 2012 from just 27 in 2008. The newcomers include alternative-fuel models such as Chevrolet (GM) Volt and Nissan (NSANY) Leaf.

The latest generation Golf, though longer and wider than the model it replaces, is 220 pounds lighter, which factors into a fuel consumption saving of up to 23% when the vehicle is equipped with the 1.4-liter turbo engine, producing 140 horsepower. VW offers several advanced safety usually only available in luxury cars, such as adaptive cruise control. Adaptive cruise control limits speed while also preventing the car from gaining too quickly or colliding with a slower-moving vehicle ahead.

The new model starts in price at 16,975 Euros, the same as the starting price of the model it replaces even though the engine is more powerful in the 2013 model.

If VW can figure out another clever U.S. marketing campaign for the Golf, it could turn into one of the automaker's mainstream brands, perhaps its strongest. Though VW's use of the German word "golf" originally denoted what English speakers know as "gulf," today it's also an elite sport that has grown globally and in terms of prestige, especially among women. Ralph Lauren evidently knew what he was doing when he chose Polo to sell clothing.

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