BIZCHINA / Auto Industry in China
Volkswagen pulls a U-turn in Chinese market
By Yu Qiao (China Daily)
Updated: 2006-11-18 05:49
Winfried Vahland has a reason to grin. He has turned Volkswagen's ailing
China operations around in just one year.
Since the 49-year-old Vahland launched a radical restructuring plan in
October last year, the German carmaker has regained sales growth and made
big progress in cutting costs in China. He was appointed president and
chief executive officer of Volkswagen China Group in July last year.
In the first nine months of this year, Volkswagen's China sales surged by
28.7 per cent year-on-year, selling 524,558 vehicles.
Also executive vice-president of Volkswagen Group, Vahland said the
company's full-year sales will exceed 600,000 units in China.
The figure, although a little conservative, is up from 570,876 units
posted in 2005, which marks a rebound from consecutive plunges over the
past two years.
The 2006 sales, Vahland said, will enable Volkswagen to lift its market
share in China to 17.5 per cent from 17 per cent last year.
"This is far from the 50 per cent share it enjoyed a few years ago, but
it is heading in the right direction," he said.
Vahland said Volkswagen has slashed its production costs in China by 20
per cent this year from 2005.
In 2007, he anticipated, the German carmaker will achieve its 2008 target
of cutting costs by 40 per cent from last year.
These achievements are the direct result of Vahland's restructuring plan
in China, called the "Olympic Programme," The company said the programme
is designed to increase sales, stabilize market share, cut costs and
strengthen the position of all of the German carmaker's products.
The plan came as Volkswagen - the sole official automotive partner of the
2008 Beijing Olympics - suffered a tumble in sales and market share in
China over the past several years due to strong attacks from rivals, its
relatively aged line-up and high costs.
Commenting on the implementation of the "Olympic Programme," Vahland
stressed: "Speed is the most decisive success factor."
However, the cigar-smoking executive is not puffed up by his success, but
cautiously optimistic.
"There's still a lot of work to do, but we are well on our way to
becoming the gold medal winner among carmakers in China," he said.
No doubt that Volkswagen, the biggest player in China's car market since
the middle of the 1980s, will face more formidable challenges ahead from
both increasingly popular Japanese brands and fast-growing Chinese
carmakers.
Volkswagen now runs two car joint ventures with Shanghai Automotive
Industry Corp (SAIC) and First Automotive Works Corp (FAW) - the two top
Chinese vehicle manufacturers.
New products
The German carmaker plans to introduce 12 to 14 new models into the two
ventures from late 2005 to 2010.
The venture with SAIC is making Volkswagen's Santana, Passat, Polo, Gol
and Touran. It will launch an Octavia compact sedan from Skoda, the Czech
unit of Volkswagen, at the beginning of next year. Skoda will also bring
its Superb mid-sized sedan and Fabia subcompact car into the venture
later.
FAW Volkswagen's existing line-up includes the Jetta, Bora, Golf, Sagitar
and Caddy as well as the Audi A6 and A4. Audi is a premium brand wholly
owned by Volkswagen. The venture will launch a Volkswagen Magotan
mid-sized sedan in 2007.
In the past, Volkswagen Group's products made at the two ventures were
perceived as competitors with each other.
To alter the scenario, the German carmaker has differentiated market
positioning of its brands: Volkswagen-brand models made at the venture
with SAIC target "young urban people and trendsetters"; Skoda is "the
mid-range line for trend-setting urban families"; the venture with FAW's
products under the Volkswagen nameplate target customers with "high
social standing who love original German designs"; Audi is the premium
brand for the elite.
Vahland, former vice-chairman of Skoda, said he expects the Czech brand
to kick off production in China next year. He says it will be a new
"pillar" of Volkswagen Group's local operations as well as the Volkswagen
and Audi brands.
In line with the branding strategy, Volkswagen and its two ventures have
also restructured sales channels with each brand having its own dealer
network focused on different customer demands for products and services.
To meet the needs of increasingly sophisticated customers in China,
Shanghai Volkswagen and FAW Volkswagen have launched their own service
brands - "TechCare" and "Total Care with Precision," which have both
gotten positive feedback.
According to a recent JD Power survey, Audi ranks No 1 in terms of
customer satisfaction. FAW Volkswagen and Shanghai Volkswagen ranked No 3
and No 4.
Volkswagen and the two joint ventures now have a total of more than 1,000
dealerships and service stations in China.
Cost-cutting
In the past, Volkswagen's vehicles were relatively expensive when
compared to models of rivals in China.
However, analysts said, they will have more attractive prices for Chinese
customers with the German carmaker's persistent cost-cutting efforts.
To reduce costs, Volkswagen and its two Chinese ventures have centralized
sourcing of all their auto parts.
Volkswagen also plans to speed up sourcing of local parts for its
China-made vehicles.
It expects an average of 80 per cent of parts used in its China-made cars
will be purchased locally by 2008, up from around 60 per cent at present.
The German carmaker and its two ventures now have a total of 800
suppliers in China.
Despite the rising localization of parts, Vahland stressed that there is
"no compromise" on quality of its products made in China.
He said China's parts industry is on a good development trend and will
reach a much higher level in the years to come.
Analysts said car prices in China will continue on the downward trend as
a result of heating market competition. This will add pressures on
foreign and domestic carmakers to cut costs.
(For more biz stories, please visit Industry Updates)
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