Volkswagen adds $12b to mainland investment
Volkswagen plans to spend three billion deutschemarks (about HK$12.4 billion) in the mainland over the next four years producing new cars, including a small mass-market compact model, dubbed the 'people's car'.
This will double its investment on the mainland.
Stefan Jacoby, Volkswagen vice-president for the Asia-Pacific region said: 'We are feeling very confident. This is double the amount we have invested over the past 15 years.' Three-quarters of the German car-makers Asian sales are in the mainland, where its two joint ventures, one in Shanghai, which produces the Santana, and another in Changchun, which produces the Jetta, account for more than half of domestic sales.
Last month, Volkswagen started producing a new model of the Audi 6 in Changchun. Next March, a version of the Passat will go into production in Shanghai, and in 2001 the FAW Changchun plant will start making the Bora car.
In 2002, a new Shanghai plant will start producing a compact car designed for the mainland. Priced at about 110,000 yuan (about HK$102,399) it will be billed as the first up-to-date small family vehicle to come on the market in the mainland.
'About 30 per cent of our sales are to private customers, and we think this segment will grow,' Mr Jacoby said.
'We predict that by 2008 or 2010, 20 million Chinese will be able to purchase a car for themselves. That is the market in Spain.' Like other investors, Volkswagen has been caught unawares by the slowdown in demand.
Five years ago, it forecast sales would hit at least a million units a year by 2000 but domestic sales are instead stuck between 500,000 and 600,000.
'We had expected to be selling 600,000 cars a year by 2000 but the market has not even reached the level of our sales forecast. We thought the growth rates of 30 or 40 per cent a year would continue,' Mr Jacoby said.
'Instead growth is between 7 or 10 per cent and Volkswagen expects it will stay at that rate.' Over-optimistic expectations persuaded Volkswagen to invest in expanding production. The visiting German Chancellor Gerhard Schroeder formally opened a new factory in Shanghai, which will bring the capacity of Volkswagen in the mainland up to 600,000.
Even though Volkswagen's two plants were running at well below the existing capacity of 450,000, Mr Jacoby said that Volkswagen had from the beginning been able to make a profit in the mainland.
'Last year, our business in China produced profits of approximately 300 million marks,' Mr Jacoby said.
Profit margins on turnover have been about 10 per cent for the Shanghai plant and the company is using its regional profits to fund further investments.
In Japan, Volkswagen is boosting its dealership system and aims to become the top-selling foreign car company. In South Korea and Thailand, it is also trying to boost sales and distribution.
With Volkswagen set to make a major investment in the mainland in the next four years, the man in charge of the job - which will determine the success of the company's strategy to become a serious player in Asia - is Stefan Jacoby.
Monday Face, Page 10
