THE MIRROR OF MEDIA

How Volkswagen stalled in China By Reuters


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© Reuters. FILE PHOTO: Individuals go to the Volkswagen sales space throughout a media day for the Auto Shanghai present in Shanghai, China April 19, 2021. REUTERS/Aly Track/File Picture

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By Yilei Solar and Tony Munroe

BEIJING (Reuters) – In late December 2019, managers at Volkswagen (DE:) headquarters in Wolfsburg realised they could have a significant issue in China, the corporate’s greatest market and ticket to its electrical future.

Its flagship Passat sedan had fared badly in an unofficial security check carried out by an insurance coverage business physique which simulated a front-on driver’s aspect collision, a check that is been extensively utilized in america for round a decade.

The automotive was mangled. The crash-test video went viral, attracting tens of millions of views and triggering a social media furore throughout China, the place the German auto king’s success is constructed on its fame for superior high quality and engineering.

Volkswagen was not obliged to do something – the Passat had handed the Chinese language regulator’s frontal collision check, the identical check that is utilized in a lot of Europe, and one which the carmaker and plenty of business consultants imagine higher displays driving circumstances in China.

Nonetheless, Wolfsburg acted swiftly, in line with two folks with direct data of the matter. Days after the check outcomes had been introduced, it assembled a workforce of dozens of engineers and managers to work with SAIC-Volkswagen, the 50/50 three way partnership that makes Passats in China, they mentioned.

In early 2020, that workforce determined that strengthening steel parts needs to be added to the entrance of all new Passats and quite a lot of different fashions made on the Shanghai-based enterprise, at a price of about 400 yuan ($62) per automobile, in line with the sources.

That structural modification, particulars of which haven’t been beforehand reported, would quantity to tens of tens of millions of {dollars} for the tons of of hundreds of automobiles that will be affected on the enterprise a yr, the sources mentioned. It was a big value for an organization that had mentioned it was making an attempt to trim manufacturing prices in China and globally.

The intervention within the face of on-line shopper activism underlines the significance of China, the world’s greatest automotive market, and one which Volkswagen is counting on to fund its 35-billion-euro ($42 billion) transition to electrical automobiles and make good on its pledge to overhaul Tesla (NASDAQ:) Inc to turn out to be world EV chief by 2025.

World automakers’ costly renunciation of oil comes at a time after they can now not rely on the dominance they’ve loved in a long time passed by in China, the place they’re feeling the warmth from native gasoline and electrical gamers difficult them on know-how and design.

A Volkswagen spokesperson mentioned it developed merchandise particularly for the Chinese language market and that the check failed by the Passat had simulated a head-on collision between two automobiles, a state of affairs it mentioned was much less doubtless in China than america.

“In China there are central obstacles on the highways,” Volkswagen added. “In China there aren’t usually as many vans or pickup vans in comparison with U.S. site visitors situations.”

Requested concerning the 400-yuan modification, the spokesperson mentioned Volkswagen was consistently bettering its merchandise in line with buyer suggestions, and to make them safer.

‘UTMOST IMPORTANCE FOR VW’S HEALTH’

It is tough to check designs of Passats throughout Volkswagen’s markets as they’re typically essentially totally different automobiles constructed on totally different manufacturing platforms.

The brand new Passat in China was the primary mannequin to have such a structural modification when it was rolled out in mid-2020, in line with the sources. It handed the insurance coverage business check that its predecessor had failed.

However the reputational and monetary harm has proved extra persistent for Volkswagen, which has been the top-selling overseas carmaker in China and has made largely wholesome income throughout its over three a long time there, the longest of any abroad participant.

Volkswagen’s revenue per automobile within the nation has fallen from ranges of 1,400-1,500 euros round 2015 to round 1,000 euros and even nearer to 800 euros in most up-to-date quarters, in line with Bernstein analysts who described China as “of utmost significance for VW’s monetary well being”.

Gross sales of the Passat, and extra broadly on the enterprise with SAIC Motor, have slumped – one thing Volkswagen has attributed primarily to the backlash over the failed crash check, in addition to product lineup points and a world chip scarcity.

In an indication of the monetary pressures dealing with the business, one inside memo, seen by Reuters, confirmed SAIC-Volkswagen’s finance workforce ordered managers to chop prices at workshops by 30% in 2019, versus the yr earlier than, when China’s automotive gross sales dropped for the primary time since Nineties.

Volkswagen declined to touch upon the Bernstein profitability figures or the interior memo.

SAIC-Volkswagen’s income dropped 26% to 174.5 billion yuan final yr versus 2019, whereas revenue fell 23% to 31 billion yuan. Gross sales of the Passat, as soon as one of many best-sellers in its sedan class earlier than the insurance coverage physique’s check, fell 32% to 145,805 automobiles, in line with consultancy LMC Automotive.

Whereas the COVID-19 pandemic clearly performed a giant function, the decline on the enterprise was far steeper than the general 6.8% fall in Chinese language passenger automobile gross sales in the identical interval, in line with information from the China Passenger Automotive Affiliation.

Furthermore Volkswagen’s different most important enterprise within the nation, with native automaker FAW – whose merchandise weren’t concerned within the crash check controversy – noticed gross sales rise 1.5%, although VW officers say it gained momentum by introducing SUVs and premium Audi fashions to the market.

The 2 joint ventures make up the majority of Volkswagen’s Chinese language enterprise, accounting for all its native manufacturing. They’ve traditionally been shut in numbers of automobiles offered, although FAW has taken the lead lately.

There’s been no respite for SAIC-Volkswagen in 2021, with gross sales falling 7.8% within the first six months in contrast with a yr earlier when the pandemic raged. FAW-Volkswagen noticed gross sales develop 23% whereas general Chinese language passenger automotive gross sales jumped about 29%.

CRASH TEST FRACTURED ‘A-PILLAR’

The C-IASI check that the Passat initially failed in 2019 was developed by a Chinese language insurance coverage business physique, the CIRI Auto Know-how Institute, which was unhappy with the usual C-NCAP check performed by CATARC, a government-backed automobile testing company.

It mentioned many insurers felt that C-NCAP failed to tell apart in sufficient element between automobiles by way of collision security, and began publishing check leads to 2018.

Most overseas automotive manufacturers acquired constructive leads to the C-IASI check, although even people who fared poorly didn’t obtain the web backlash that was aimed on the Passat.

The C-IASI check topics 25% of the automotive’s entrance to a head-on affect. It fractured the Passat driver’s aspect entrance roof help, often called the A-pillar.

The usual C-NCAP check hits 40% of the automotive entrance, which permits the affect to be higher absorbed.

The CIRI and CATARC didn’t reply to requests for remark.

In america, a 25% frontal affect check is utilized by the Insurance coverage Institute for Freeway Security (IIHS), a nonprofit group funded by auto insurers. IIHS checks are extensively publicized, and automakers design automobiles to cross them in addition to federal crash checks.

Volkswagen’s China chief Stephan Woellenstein acknowledged in January that the failed crash check and subsequent on-line backlash had triggered the decline in Passat and SAIC enterprise gross sales.

Final month, although, he mentioned Volkswagen had mounted the issues revealed by the check, that the ructions of the episode had subsided and the carmaker’s Chinese language enterprise was recovering.

“We have now as soon as once more clearly one of many most secure automobiles in the marketplace on this section,” Woellenstein informed reporters in July. “We’ll as soon as once more take up the outdated management of the Passat.”

However there may be fairly some floor to regain within the giant household automotive section.

A complete of 47,480 Passats had been offered within the first six months of this yr in China, a way behind the 91,110 Toyota Camrys and 89,157 Honda Accords, in line with LMC.

The figures from the identical interval of 2019, earlier than the pandemic struck, present how steeply the Volkswagen mannequin has fallen away of late: 91,400 Passats had been offered versus 111,968 Accords and 85,396 Camrys.

($1 = 6.4610 renminbi; $1 = 0.8423 euros)





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