VW Considers Product Review for China

Mass-market car-maker Volkswagen AG is considering a review of its product strategy for China in a bid to avoid missing out on the country's booming demand for cheap cars, the company's marketing director, Robert Büchelhofer, told Handelsblatt at the Auto China 2002 car show in Beijing.

Sales of cheap cars – those costing up to 100,000 Yuan (14,000 euro) – grew by 73 percent in the first quarter of this year, making this easily the fastest-growing price segment. But it's one in which VW is not represented.

The Polo, which came on to the Chinese market in April, costs a relatively steep 127,500 Yuan in its basic version, but it's the cheapest VW group model that's available to Chinese consumers.

"We are taking this very seriously, and are considering alternatives," said Büchelhofer.

More and more buying cars

Last year, cost considerations led VW to abandon plans for a cheaper entry-level model for the Chinese market. At present, company cars and taxis meet 70 percent of Chinese demand for private transport. Some 2.8 million people in Beijing, for example, hold a driving licence, but only 1 million of them own private cars.

But Büchelhofer is expecting private cars' share of the market to grow from the current 30 percent to 50 percent by 2004. In Büchelhofer's view, the automobile industry has now learned to take a more realistic view of the growth opportunities offered by the Chinese market.

"All the experts' forecasts proved over-ambitious. In 1995, they were expecting Chinese car sales to hit 1.5 million units by 2000. Now we're seeing around half that figure," he said.

Investing in a prosperous future

The VW marketing chief believes it's realistic to expect annual unit sales to rise to 1 million within the next five years. Over the next five years, VW plans to invest a further 2.5 billion euro in the Chinese market, with "almost all of it in new models,"; Büchelhofer said. And imports, which have grown by 42% since January, are to be stepped up further.

The group has already set up a financing company, and it plans to use this to promote private car acquisition. But like other foreign car makers, it's waiting for the Chinese central bank to issue guidelines.

Right now, there's sufficient capacity in China to produce a million cars a year, but on average, this capacity is only 50 percent utilized, so the expansion plans of other car makers – notably U.S. giant General Motors and some of the Japanese companies – do not worry VW unduly.

According to Büchelhofer, capacity utilization at VW's two Chinese plants – in the north-eastern city of Changchun and in Shanghai – stands at 70 percent. Both are run as joint ventures with local partners.