Emerging Markets

Slowdown Exposes VW’s Deeper Problems

VW likely won't have to replace the Beetles destroyed in the Tianjin explosion. Source: DPA
VW likely won't have to replace the Beetles destroyed in the Tianjin explosion.
  • Why it matters

    Why it matters

    Plummenting sales in Brazil, China and Russia have exposed structural problems that VW will need to resolve to remain the world’s largest automaker.

  • Facts

    Facts

    • Volkswagen will slash production in China by up to 20 percent this year.
    • As sales have tanked in Russia, VW has already cut 400 jobs.
    • Brazil is also dragging on Volkswagen.
  • Audio

    Audio

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Business has stalled in Volkswagen’s three key emerging markets, China, Russia and Brazil, which account for 43 percent of all vehicles sold in the group and a third of its profits.

Not long ago, double-digit growth in those markets enabled the world’s biggest carmaker, with 600,000 workers and sales of €203 billion, or $226 billion, to hide a number of weaknesses, including an over-dependence on China and outdated model lines.

With growth in China slowing, a high-ranking manager at VW told WirtschaftsWoche he now expected the carmaker to suffer a “thirsty streak for at least another year” in the Asian powerhouse.

Volkswagen has responded with a number of measures. After seeing sales in China slide from a 10-percent gain last year to nearly a 7-percent decline in the first half of 2015, the company confirmed to WirtschaftsWoche that it has throttled down production of several models.

Production of the Magotan, the company’s Chinese version of the Passat, dropped from 15,000 vehicles a month to just 5,600 in April, according to car industry expert Jochen Siebert from the JSC consultancy in Shanghai. Reductions in the “production of specific models will total 10 to 20 percent for the entire year,” he said.

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