Expansion plans

China a Brightspot for Blighted VW

VW
VW's Chinese production lines are still booming despite the emissions-rigging scandal.
  • Why it matters

    Why it matters

    The Chinese market accounts for half of Volkswagen’s sales worldwide and has escaped relatively unscathed from the firm’s emissions-rigging scandal.

  • Facts

    Facts

    • Jochem Heizmann, 64, is the first president of the Volkswagen China Group.
    • Only about 2,000 cars in China have had to be recalled as a result of the emissions-rigging scandal.
    • VW is investing more than €4 billion to expand its business in China, with a focus on hybrids and fully electric cars.
  • Audio

    Audio

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Volkswagen is having a torrid time in Europe and the United States, facing pressure from regulators and customers over the diesel emissions-rigging scandal. Public prosecutors are investigating the carmaker on both sides of the Atlantic and VW itself has commissioned a U.S. law firm to find out how the manipulation came into existence.

Things got worse on Monday when German broadcasters revealed that high-ranking managers were involved in the emissions rigging, which has affected 11 million cars worldwide, mostly in Europe.

But at the Beijing auto show this week, VW’s problems were of a completely different nature, namely dealing with a malfunctioning air conditioning unit. Jochem Heizmann, president of the Volkswagen China Group, was forced to present the firm’s SUV and electric car programs in stifling heat, but managed to find a cool office to discuss the scandal, the large but cooling Chinese auto market and the firm’s investment in e-mobility.

 

Handelsblatt: Mr. Heizmann, in the midst of the emissions scandal, China is one of the few bright spots for Volkswagen. Will the company now be even more dependent on its business in the People’s Republic?

Mr. Heizmann: China, the world’s largest auto market, accounts for a large share of our sales. But we won’t sell fewer cars to become less dependent. Instead, we have to evaluate the market correctly. We want to align ourselves entirely with the interests of our customers, so that we can secure strong sales in the longer term. Markets and regions will be strengthened in the restructuring of the Volkswagen Group. This is especially true of China.

What exactly does that mean?

We are getting more responsibility. We want to place a greater focus on understanding what the future will bring. This is why one of three worldwide Future Centers is in China.

In addition to Volkswagen, all German automakers except BMW are now being accused of manipulating emissions data. Does this make you feel relieved?

I won’t comment on competitors. My job is to concentrate on the Chinese market. Fortunately, only a small number of our cars were affected here. We know exactly what to do now. The technical preparations have been made. We will sort things out in China. Customer satisfaction is our priority.

Only 1,946 Tiguans and four Passats had to be recalled in China. But the agency that regulates quality in Beijing has reserved the right to take further steps. How are talks with the authorities going?

It’s a good thing that the authorities are reserving the right to take further action. Additional tests are being done. But I don’t assume that anything else is coming.

VW now has record reserves of more than €16 billion ($18 billion). Is some of that money planned for China?

The recall in China is a relatively minor issue. We were almost unaffected here. We stand fully behind our investment program here in China, and we will invest more than €4 billion to expand our business. Electromobility is a big issue for us. We will introduce 15 locally produced plug-in hybrids and purely electric vehicles in the coming years. We are also starting our SUV offensive. We will offer our Chinese customers 10 new models. We assume that there is still substantial potential for growth in China.

VW_dpa
Jochem Heizmann has more reason to smile than many other VW executives. Source: DPA

 

But aren’t you a little late? Chinese competitors, in particular, are already strong in electromobility, and they have also made great inroads into the SUV market.

We expect high growth rates to continue. The number of electric cars being produced today is still relatively small. In addition, an extensive infrastructure of charging stations needs to be developed first. We are beginning with locally produced plug-in hybrid vehicles, to be followed by the local production of fully electric cars. You need a decent production volume to do well, which is why our strategy is exactly right. We are preparing ourselves so that we’ll be able to sell several hundred thousand electric vehicles in 2020. Our offensive in the SUV market also comes at the right time.

The battery is critical with electric cars. Why isn’t VW placing a stronger emphasis on internal battery development?

Volkswagen is taking a careful look at the issue. We already develop battery systems. For the modules, for example, we have entered into partnerships with major battery manufacturers LG and Samsung.

You significantly expanded capacity in 2015. At the end of the year, however, sales were down by about 3.4 percent. Did you overestimate the market?

We plan for the long term. We increased sales in the last quarter of 2015. In the first quarter of this year, our sales were up by more than 6 percent and achieved record first-quarter sales. I’m convinced that this trend will continue.

In contrast, General Motors pays close attention to sales and prides itself in having overtaken VW last year as the largest foreign automaker in China. Doesn’t that annoy you?

It wasn’t a big deal for me when we were passed by GM. It’s about something else here. To achieve long-term success, customers have to be satisfied.

Looking at the slowdown of 2015, do you have excess capacity in China?

We were working at maximum load until then. We had a workload of 300 working days a year. In Germany and the United States, on the other hand, we are operating at 230 to 240 working days. The additional capacity gives us more flexibility, to react to seasonal fluctuations, for example.

How much work is being done now?

We are currently at 250 to 300 working days. Our goal is not to fall below a level of 250 days a year.

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They say that VW makes six times as much profit with each car in China as in Europe. Is that true? And will profit margins shrink in the future to enable VW to regain market share?

Those numbers are speculative. We need to make money, of course.

Will the margins shrink? Will there be price competition?

Yes, there is price competition. In this context, we are stressing growth in value added.

Did the emissions scandal hurt VW’s image in China?

Of course it was talked about in social networks. But only a limited number of cars were affected in China. We emphasize full transparency. We are working very hard at regaining the confidence of our customers.

When car sales plummeted in 2015, the government created new buying incentives with tax breaks. But the programs are especially beneficial to China’s automakers. How does VW intend to counteract this effect?

This development is actually positive. It’s important to the government to support the auto market in a difficult phase. It was able to achieve good effects with suitable measures. That’s very positive. The government’s declared goal is to strengthen domestic consumption, and the auto industry plays an important role here.

 

Stephan Scheuer is Handelsblatt’s China correspondent, based in Beijing. To contact the author: scheuer@handelsblatt.com

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