Volkswagen AG (VOW)’s motorsports chief, Kris Nissen, stepped on the gas of a racing version of the Polo in an attempt to show the world’s automotive press that rally- car performance can be packed into a subcompact.Instead the Polo R WRC, which will compete in the off-road racing circuit starting in 2013, was stranded in the spotlight after Nissen stalled the car’s 300-horsepower engine. The mishap on stage at VW’s showcase event at the International Motor Show in Frankfurt this month symbolizes the challenges the company faces in shifting its namesake brand upscale.Europe’s biggest carmaker is expanding its range of souped-up VW models, which can cost double the price of the base version, to boost the brand’s margins and image. The strategy, part of the Wolfsburg, Germany-based company’s goal of surpassing Toyota Motor Corp. and General Motors Co. (GM) in sales and profit by 2018, risks increasing competition with its stable of sporty brands.“Volkswagen is blessed in the high-end segment with Audi and Porsche, not to mention Lamborghini and Bugatti,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “You really have to question whether high-performance versions for the VW brand are really necessary.”VW’s earlier foray into the high-priced segment with the 68,300-euro ($92,300) Phaeton luxury sedan fell flat after the company withdrew the car from the U.S. market in 2006 because of weak demand. The model, which cost more than 1 billion euros to develop, was updated in 2010 to boost demand from last year’s production of 7,500 vehicles, compared with 829,000 Golfs.The latest effort to go upscale is based around the R unit, which developed the off-road Polo racer and promotes high- performance variants like the 37,375-euro Golf R.The strategy of rolling out more powerful versions may be “more sustainable” because it builds off existing models, said Kevin Tynan, an automotive analyst with Bloomberg Industries in Princeton, New Jersey. “You can create halo products without moving out of your customers’ price range.”The all-wheel drive Golf R, which costs more than twice as much as the 16,975-euro base version, will be introduced in the U.S. at the end of the year, further broadening the reach of the models, said Ulrich Richter, head of the R division, which was set up in March 2010. Sales of R models will likely increase by 50 percent to about 15,000 cars this year after expanding to China in July, he said.“Demand for the Golf R is huge, and we’re stepping up production,” Richter said in an interview at the Frankfurt motor show. “There’s a pronounced trend towards customization and growing demand for sporty and exclusive models from all over the world, especially in China, the Arab region and the U.S.”The R unit also offers the 34,825-euro Scirocco R coupe as well as sports packages for so-called R-line versions of the Passat CC sedan and the Touareg sport-utility vehicle.It may expand with an R version of the Beetle after showing a concept version in Frankfurt. Demand is “incredibly high” for a Beetle R, said Richter, adding that a decision may be taken this year.VW’s expansion is part of overall growth in high-end, customized cars. Daimler AG (DAI)’s Mercedes-Benz is expanding the AMG unit, while Bayerische Motoren Werke AG (BMW) is boosting M offerings.AMG increased sales by more than 10 percent in 2010, boosted by record sales in China and growth in Australia and Canada, said Verena Mueller, a Daimler spokeswoman in Stuttgart, Germany. Demand has been fueled by the $189,600 SLS supercar, the first car ever developed by AMG, with more than 5,000 sold since deliveries began in March 2010.Daimler is considering having AMG develop additional models as it seeks to expand its offerings of high-end vehicles, two people familiar with the situation said Sept. 7.BMW’s M unit, which makes high-performance versions like the 109,000-euro X6 M SUV, increased sales by 14 percent to 16,967 vehicles in 2010, boosted by a four-fold increase in demand from China. This year, BMW expanded the M range with the M1 coupe and debuted a revamped M5 in Frankfurt.“The segment of high-performance variants has been growing strongly,” though exact figures are difficult to track, said Christoph Stuermer, a Frankfurt-based analyst with IHS Automotive. “With the ongoing re-positioning towards high tech, including ‘green tech’ rather than brute power, these special subsidiaries should have a great future.”Those prospects are encouraging dealers to invest in the models. Ernst-Robert Nouvertne, who runs two VW dealerships in Solingen, Germany, about 25 kilometers (15 miles) northeast of Cologne, is considering clearing floor space to accommodate a Golf R, Scirocco R and Tiguan R-line models.“The share of customers able to purchase these models appears to be on the rise,” Nouvertne said.Still, VW’s R unit will also compete with the Quattro unit of the automaker’s own Audi brand. The Ingolstadt, Germany-based unit aims to double the share of special-equipped vehicles to 20 percent of global sales by 2015.In presentation, Audi already has a leg up. An Audi A5 racing car drove smoothly off the stage in Frankfurt, abandoning its corporate cousin.