VW to build New plant in South China

Two weeks later, Volkswagen China, FAW Volkswagen and Shanghai Volkswagen will together release their “Southern strategy” in Guangzhou Auto Show, which is the most important part of their “2018 strategy”. A person who is familiar with the situation revealed that as an outstanding auto manufacturer in the world, Volkswagen’s “Southern strategy” is being regulated by Fan Ande .What’s more the strategy has been discussed for three years with many conference, statistics and details. However, although the media have reported a lot that Volkswagen would enter the South China’s auto market (the largest auto market in China), the reports mainly focused on the products, channels and marketing rather than the fundamental parts of the “Southern strategy”. As a matter of fact, Volkswagen is considering building a plant in South China except for the plants in Changchun and Shanghai.

“To build a plant in South China has been determined. Volkswagen plans to announce its plans in Guangzhou Auto Show by Fan Ande .If the condition is unfavorable, Volkswagen maybe will not release the plan to build a plant in South China as well. We have analyzed our technologies and models and the result is excellent. Considering we doesn’t have much market share in South China we believe there has no problems with our channels and marketing .The layout of our production has impacted us a lot in South China market, hence we are determined to build a plant there,” a source in Volkswagen told reporters.

Caused by historical reasons concern joint venture arrangement, Volkswagen always seen the North and East China as a production base, and only defined the South China as a sale base. Japanese auto manufactures nevertheless, have long treated South China as sale base. Compared with Toyota, the production layout of Volkswagen is inferior. Toyota has joint plants in Changchun, Chengdu and Guangzhou. Other Japanese auto manufacturers such as Nissan and Honda also made a great progress in China by entering into South China .

However, Volkswagen’s joint entire vehicle plants and auto parts enterprises are all located in East China and cities including Changchun, Shanghai, Dalian and Nanjing .Recently Volkswagen also entered into Chengdu but still is far away from Southern China .As a result , FAW Volkswagen and Shanghai Volkswagen hasn’t developed a pretty close relationship with their dealers and prospective buyers in South China. Volkswagen’s market share accounts for 5% in South China for a long time, which can’t comply with its status as the largest joint venture auto manufacturers in China.

South China’s new car sales could account for 35% of whole China’s new car sales and one-third car sales of main auto manufactures in China was accomplished in South China. In Guangzhou market, the proportion of Japanese cars is as high as 55.2%. China's domestic auto manufacturers, Germany and the U.S.’ auto manufacturers together occupy only about one-third market share. “Considering the consumer inertia formed in history in South China and the rapid development of local auto manufacturers, any manufacturers have to be faced with fierce competition there, so Volkswagen is sparing no efforts to broaden its market share in South China,” said Su Weiming, vice executive president of Volkswagen China.

At present, FAW Volkswagen is likely to build it fist plant in South China. Previously, Shanghai Volkswagen planned to build a plant in South China in order to expand its production capacity .However, the plan proposed by Shanghai Volkswagen was rejected by Shanghai relevant regulators. Aggressive as SAIC is, it is only an enterprise controlled Shanghai government. In other words, Shanghai Volkswagen’s plans are sometimes limited. Meanwhile the rejection also stimulated SAIC to accelerate its acquisition of the plant which was previously owned by Fiat .After the acquisition SAIC plans to invest 1.3 billion Euros in that plant so that produces new models and expands its production capacity.

Besides, FAW Volkswagen also began to produce new models in its plant in Chengdu also expecting to expand production capacity, but its production capacity still need to be improved if the company wants to meet the requirement of "2018 strategy". Actually FAW Volkswagen is more eager to broaden its share in South China than Shanghai Volkswagen. What’s more, FAW Volkswagen is a state-owned enterprise hence it has a great flexibility in implementing its plans. Based on the above factors, we guess FAW Volkswagen is likely to build its first plants in Southern China.

Because the plan discussed by FAW Volkswagen and Shanghai Volkswagen is very confidential, reporters can’t know where Volkswagen wants to build its first plant in South China. Besides, the amount of investment and the information of production capacity are also unknown. According to China’s investment and expansion policies, Volkswagen must first conduct a series of mergers and reorganizations. Finally we think Volkswagen’s plant in South China will be located in Dongguan Industry Park. (Translator: Qinghua Wade)

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