The Volkswagen Phaeton was a brainchild of Ferdinand Piech, who envisioned a luxury model that would beat the image and quality of its main competitors, the BMW and Mercedez-Benz. Its target market, in particular, was the lower cost A-class that Mercedes directly competed with during the release of the VW Phaeton. Engineers who were on the team developing the Phaeton had to fulfill several parameters given by Piech. Engineers had to make sure the VW Phaeton was able to drive 300 kilometers an hour at a whole day pace. The exterior temperature of the vehicle should be maintained at 50 degrees Celsius, with the interior at 22 degrees Celsius.

The car itself is assembled in the Transparent Factory, located in Dresden, Germany. This factory is also responsible for assembling the Bentley Continental Flying Spur vehicles. The model’s body itself is painted and fabricated in Zwickau, Germany, where the Volkswagen works is located. The engines, on the other hand, are developed and built at a plant in Gyor, Hungary.

In 2005, the Phaeton lounge concept car was released. Accommodating six passengers, this model variation is also upgraded with a six-speed Tiptronic automatic transmission, a mini bar, two 17-inch monitors, a trunk with a DVD changer, and other fantastic convenient features.