Accelerated growth
June 8, 2010
German carmaker Volkswagen originally set itself the target of selling 2 million vehicles in China annually by 2018.
The head of the company's Chinese operations, Winfried Vahland, said in Beijing on Tuesday that the goal would now be reached "in one to two years."
Vahland also predicted that the German-based carmaker would see strong double-digit growth this year in its biggest market, with sales rising by over 20 percent year-on-year.
Volkswagen sold 1.4 million cars in China in 2009 - more than 20 percent of the company's annual globals sales.
To keep up with the demand, Volkswagen is building four new factories in China. Vahland said he was confident that VW's share of the market, which rose to 17.5 per cent in May, would continue to grow.
Runaway growth
The Chinese auto market has seen explosive growth over the past year thanks to economic stimulus measures implemented by the government in response to the global financial crisis.
Tax breaks for low emission cars and greater access to personal credit have stoked demand. The government has also granted car manufacturers additional production permits to help them keep pace with it.
In the first four months of the year, Volkswagen saw a sales rise of 53 percent from the same period one year earlier. It sold 620,500 cars in the world's most populous country through April.
Vahland said, however, that growth of 50 percent was "unhealthy" and explained that the surge could be partly attributed to weak sales figures from the 2008 world recession, and would therefore flatten over time.
Automobile analyst Christoph Stuermer of IHS Global Insight told Deutsche Welle that the growth rates in China over the past 18 months had trumped all expectations.
"Rather than a strategic achievement, this is as an operational achievement in terms of getting the factories there to produce enough cars to keep up," said Stuermer.
Investing in the future
Such expansion requires considerable expenditure. Volkswagen is investing 6 billion euros ($7.17 billion) into China from this year through 2012.
"When Vahland was asked about profitability, he rather evaded the issue. The investment required for that kind of growth is great even in terms of the auto industry," said Stuermer. "VW is taking great strides to cement its position as a quasi domestic firm and keep in favor with the domestic authorities."
"It's a game of politics. It's more a question of maintaining growth rather than beating off competition," he added.
But the industry expert also praised Vahlund for turning around VW's fortunes in China. The Wolfsburg-based carmaker gained an early foothold in China - something that worked against it when the Chinese market opened up around the year 2000.
"VW really nosedived. A lot of people flocked to other European brands because Audi and VW were seen as a little bit stodgy," said Stuermer.
The structure of the company's Chinese operations was in much need of an overhaul. "Vahland realigned the retail network and the production network," said the automobile analyst.
VW plans to build one of its new plants in Chengdu, the capital of the south-western province of Sichuan, and another in Nanjing, the capital of the eastern province of Jiangsu.
The contract for the third plant - a joint venture between Volkswagen and China First Automotive Works in the southern boom province of Guangdong - is due to be signed Wednesday. The fourth plant is planned with another Chinese partner, Shanghai Automotive Industry Corp. Its location has yet to be decided.
Author: Julie Gregson
Editor: Sam Edmonds