Cracks in the relationship
March 5, 2017
There was shock at FAW, Audi's joint venture partner for many years, when it was announced that the German company was acquiring a new partner, and one that is even more attractive. Based in the northeastern city of Changchun, FAW is China's number 3, while Shanghai's SAIC Motor Corporation Limited is number 1. Even though FAW has several other partners, including Mazda, it is feeling unsettled. Its affiliated car dealers are feeling even more unsettled.
They are feeling unsettled by the fact that SAIC already has a network of about 500 dealers and that this is likely to grow. They are worried that profits will fall. In January, they organized a kind of boycott to protest against Audi's new China strategy and put the German carmaker under pressure: They ordered fewer cars to display their annoyance.
Audi under pressure in China
Audi's announcement was particularly poorly timed. The competition on the Chinese car market is increasingly tough. The year did not begin well for Audi, which lost its top position in the premium segment. In January, sales fell to 35,000 instead of 54,000. Mercedes, for its part, saw sales increase by 39 percent to 59,000 vehicles, and BMW's sales were up 18 percent.
Audi's new partnership at the moment is both a major opportunity and a headache. It might be able to regain its top position in the premium segment, if it can alleviate FAW's fears and come to a compromise with dealers. However, it would have made sense to prepare the ground ahead of its announcement. Now, it's going to go through an expensive, painful and time-consuming process as FAW managers mobilize its most loyal dealerships against SAIC.
Even the least aggressive dealers cannot agree with Audi making profits of millions while they witnesses losses of millions. A glance at Audi's overall turnover makes it clear how important it is for the company to resolve this issue fast. Despite growth in North America and Europe, the overall turnover fell by 14 percent in January because of the figures in China. "Vorsprung durch Technik" doesn't help much if a car has been dragged through the mud first.
DW's Frank Sieren has lived in Beijing for 20 years.