Volkswagen has a hefty goal: to displace Toyota as the world's No. 1 car company. Once fondly known to a generation of Americans for the quirky air-cooled Beetle that it sold in the U.S. until the mid-1970s, VW's (VLKAY) current batch of products are far more substantial but not nearly so popular.

Today, the German automaker has just 2.5% of the U.S. market and lags well behind Toyota Motor (TM). In the first nine months of the year, Volkswagen sold slightly less than 200,000 cars and sport-utility vehicles in the U.S., compared to Toyota's more than 1.3 million.

Europe's largest car company, VW set out three years ago to eclipse Toyota's worldwide sales by selling about 10 million vehicles annually by 2018. Given the current recession, neither automaker is anywhere near selling that many cars this year, but while Toyota's sales have fallen, thanks to both the economy and its recall woes, VW sales are on the rise -- and so are its profits.

Although it hasn't cited a specific number, Volkswagen Group, which includes Volkswagen, Audi, Bentley, Bugatti, Lamborghini and Europe-only Skoda and Seat, expects 2010 sales to exceed last year's record of 6.29 million cars and light trucks. Compare that to Toyota's full-year forecast of 7.38 million vehicles, and it becomes apparent that VW could eventually surpass Toyota.

Winning the Race to the Bank

On a profit basis, Wolfsburg-based VW is already on its way giving Toyota a run for the money. On Oct. 22, Volkswagen reported it earned €4.03 billion ($5.6 billion) in profit during the first nine months of the year, easily outpacing Toyota's anticipated full-year profit of $4.2 billion. (Toyota is expected to soon revise its profit assumptions after the yen's recent run-up against the dollar.)

Volkswagen's momentum has been helped by strong sales in China, where it commands about 18% of the market. "In China, VW is decades ahead of Toyota," says Christoph Stuermer, research director at IHS Automotive in Frankfurt. The Japanese automaker, despite its considerable efforts, has had trouble gaining traction in China.

In the three months ending September, VW sold about 1.5 million vehicles in China -- seven times that of Toyota. And clearly VW aims to sell many more. It announced plans earlier this year to build two new factories, raising its total in China to 11, in a bid to double Chinese production to 3 million units within four years, Bloomberg News reported.

In North America, however, VW faces an uphill climb. And to become the world's dominant automaker, VW needs to make big gains in the U.S. market. The company has committed to significantly increasing U.S. sales, seeking to sell about 1 million vehicles by 2018. "We're working hard to grow in the United States," says VW spokesman Kerry Christopher.

To that end, VW is investing $1 billion to build a new assembly plant in Chattanooga, Tenn., where a new, yet-unnamed midsize car will be built. VW also has several more new models just introduced or on the way. They include the revised Jetta, geared specifically for American tastes and aimed squarely against the likes of the Toyota Corolla and Honda Motor's (HMC) Civic.

'Unimpressive' Effort

Though VW has poured much engineering and market-research expertise into making the Jetta more appealing to U.S. consumers, analyst Stuermer says, VW's "reading of the American market is still very much with a German accent." The result is that the new Jetta hasn't been a smash hit with some automotive critics.

For example, in initial tests of the compact sedan, Consumer Reports noted that the Jetta's current batch of engine choices -- a 2-liter four-cylinder and a 2.5-liter five-cylinder -- were "unimpressive." Further, while the previous-generation Jetta offered a nicer interior than typical of cars in its class, the new model's cabin more resembles "five-year-old Fords" than recent VWs, the magazine said. Overall, Consumer Reports said its first impressions of the 2011 Jetta were "mixed."

VW counters by saying the Jetta has received as many, if not more, positive reviews by the automotive press. Ultimately, VW's Christopher says, "sales will tell the story." He didn't stipulate the company's U.S. sales goals for the new Jetta, but he did say VW expects to sell more copies than the previous-generation Jetta, which topped 108,000 units last year.

Despite its efforts, VW faces a tough slog in the U.S. market, says Jesse Toprak, an industry analyst at TrueCar.com. A few years ago, before Hyundai and Kia began making better cars and selling them more cheaply than comparable U.S. and Japanese makes, there was a hole in the market.

Questions About Quality

But Hyundai and Kia, both part of Hyundai Kia Automotive Group, have made significant strides in quality. In its most recent survey of initial new-car quality, J.D. Power and Associates said Hyundai scored seventh overall, better than the industry average and ahead of luxury nameplates such as Volvo and Ford Motor's (F) Lincoln brand.

In the same J.D. Power survey, VW placed near the bottom among all manufacturers, outscoring only Mitsubishi Motors and Land Rover. Quality improvement is a must for any major automaker that wants to sell lots more cars, Toprak says. "It isn't just volume and global presence and coming up with desirable models."

One advantage VW now enjoys is having witnessed the beating Toyota's reputation for quality has taken after its recent spate of recalls, Toprak says. VW has seen Toyota's misery, he says. "You can always learn from others' mistakes if you pay enough attention."

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dkk82d

VW doesn't get it. If they want to surpass Toyota, they need to build a car that will spend more time in your driveway than it doess in the dealer's service bay. I owned two VWs (a Passat and a Golf). They were fine cars, so long as they were under warranty and I wasn't paying for all the trips to the dealer. And it is telling that if you want an extended warranty from Toyota, it runs about $500+. The same from VW goes for $1600+. What does that say about VW's confidence in their own cars? And speaking of VW dealers- they are even more clueless when it comes to customer service and the sales experience vis a vis Toyota. And even if VW does manage to get something right, such as the unbelievably cool blue dash lights- they do away with them. Sorry VW, I work too hard to piss away my money on one of your lemons...

November 02 2010 at 9:14 PM Report abuse +1 rate up rate down Reply
mcsturgis

Until VW gets their service issues fixed I would not by a third one. They do not cover their products as well as the Toyota and Honda. They have a habit of treating the customer like they are all idiots. Could just be the dealer here but we have also had trouble at the regional level of getting them to approve warranty work for problems that were clearly generated at the factory. Too bad as we have enjoyed the cars.

November 01 2010 at 3:19 PM Report abuse +1 rate up rate down Reply
1 reply to mcsturgis's comment
themanindbox

Not just them i had issues with my mustang, and had to contact the SEMA folks to get it covered. I wouldnt buy anything other then a toyota ever again.

November 01 2010 at 4:24 PM Report abuse +1 rate up rate down Reply
kv37

Aren't we getting bored with toyota and honda. Time to move on people.

November 01 2010 at 2:49 PM Report abuse -2 rate up rate down Reply
1 reply to kv37's comment
themanindbox

If you buy a car for looks you buy an american car, if you have money, you buy an american car, since they nickle and dime the crap outta you, if you buy a car for transportation A - B car, then you buy honda or toyota, as they will never leave you stranded. But they are bland as sin!

November 01 2010 at 4:38 PM Report abuse +1 rate up rate down Reply
gardnerst8

Toyota dropped their Solara, so..if you want something besides a generic four door(Chevy has those in four sizes)..well, neither they nor VW have it..and most up-scale imports, Infiniti or BMW coupes, are stuck on premium gas engines, while Cadillac and Lincoln are not, and only Cadillac has just gotten a coupe (for a price that will buy you two Altimas or Accords) This leaves you with Nissan and Honda (who has two coupes)=Japanese. Detroit, Ford, Chevy, Dodge...uh...same generic four doors OR they want to stick you with a big engine in three coupes just now finally again available...so, back to Nissan and Honda. Buy American? If they refuse to offer it, you can't buy it.

November 01 2010 at 2:41 PM Report abuse rate up rate down Reply
1 reply to gardnerst8's comment
themanindbox

My major issue with all of them is i want a stick shift, and no one makes one, WTF... i guess its just to stick with used cars.. Caddilac blows, i would never recomend them to anyone. after i sat in a lawn chair and watched mine burn to a crisp on the side of the road.

November 01 2010 at 4:27 PM Report abuse rate up rate down Reply
Janusz Peciak

What about US? Why we spend so much money for space to build a billion dollars for space ship.We have the best technology on the world.We should focus on cars like Germany, our economy will be much better shape.VW selling so many cars to China ,why American can't do it.We import so much from them ,why we can't export cars to them .We are more stupid or what?

November 01 2010 at 2:09 PM Report abuse rate up rate down Reply
jfrank5317

Doesn't VW own the Porsche brand as well? Why didn't the article include that car brand under "Volkswagen Group' cars?

November 01 2010 at 1:24 PM Report abuse rate up rate down Reply
pichajmark

And when VW does become more like Toyota...I'll stop buying VWs. That's why I liked those quirky little German cars--because they were anti-Toyotas!

November 01 2010 at 12:33 PM Report abuse rate up rate down Reply
apetker

I don't see VW gaining on Toyota. VW has to markably improve their quality and reduce their cost of replacement parts. I own a VW TDI 2001 Golf TDI. The vehicle is fun to drive but the reliability and cost of repair is staggering. I have spent alot of money to keep it in top shape but their computer codes are not reliable and are to vague. I have recently bought a 2010 Toyota Carolla Le I'm not satisfied with the mpg. Thank God for the Japaneese it is much better then the Peoples Car.

November 01 2010 at 12:09 PM Report abuse +2 rate up rate down Reply
sfamilyent

GM used to be number one, but we allowed free access to our market and cheap imports ate away at our domestic auto companies market share. Then the foreign auto makers started assembling vehicles here, blurring the lines between imports and domestic products... The number of jobs related to auto manufacturing has declined in the US, as has the income and benefit levels of those who remain employed in the auto sector. Auto manufacturing is not the only aspect of our manufacturing and production sector that our government has allowed imports to grab ever increasing shares of our domestic market... Congress is charged with regulating commerce and promoting the general welfare. When real median income of the lower 80% stagnates as the trade deficit grows... how can that be considered to be meeting your obligations? Oh well, I suppose it is time for a German based corporation to now try to take the number one spot from a Japanese based corporation... Funny, but don't of their countries protect their domestic markets and subsidize export activities?

November 01 2010 at 11:51 AM Report abuse +1 rate up rate down Reply
1 reply to sfamilyent's comment
themanindbox

after WW2 "we" went to japan and taught them how to unionize there autoworkers. In that they have gotten better at that then any of the US companies,far less corrupt then GM. this is why GM is struggling, they are idiots. run by Idiots, and Owned by Idiots... As for your cheap imports, yes hyundai was a cheap import, kia, suzuki and isuzu. But today your toyota is more expensive then your impala, but in 100k miles the toyota will still run like new, where your impala will burn oil, leak, windows wont open, AC wont work, seats will develope holes. Motor will run forever, tranny will slip. And your Blue book is 500 bucks. but the camry, which was 3grand more then the impala will be worth 8 - 10 grand with 100k miles and run like new. That is why they sell tons of them and why GM is not number 1. Honestly, how hard would it be for them to just use well made US parts.. I know they are out there, since the camry uses the most USDM parts of any car out there made by any manufacturer. GM Sucks!

November 01 2010 at 4:34 PM Report abuse +2 rate up rate down Reply