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FAW-VW flagging sales trigger furloughs and pay cuts

The worst fears of FAW-Volkswagen employees have become reality: pay cuts and being forced to take the “longest vacation in history” due to the joint venture’s sales slump for two consecutive months.

The furlough starts in July, the founding anniversary of FAW Group, 50-percent owner of the joint venture. In the past years, FAW-Volkswagen’s busy schedules did not allow days off.

On payday June 15, many FAW-Volkswagen employees were disappointed to receive their May pay. A worker from the company’s Chengdu factory told Caixin that he only received a little over ¥3,000 ($483), which was at least 20 percent less than before. There was no bonus or overtime pay.

“Early in June, there was some rumor about salary cut. We just didn’t expect it to be so much,” said another employee from the same factory. “The output in May was up and many teams were working 11 hours a day. Most of us expected to have the same salary, but mine was also cut by about 20 percent.”

The two cases are not uncommon. Caixin reported that employees from the three FAW-Volkswagen production facilities are having a pay cuts between 10-20 percent. An employee from the company’s planning department said the entire company has seen a lower paycheck. But he clarified that what has been lowered is the bonus. Employee regular wages remain the same.

FAW-Volkswagen spokesman Li Pengcheng told Caixin that the company’s pay structure is very complicated. Basically, he said, the current month’s salary depends on the last month’s output and sales. It is a rush to come to the conclusion about a salary cut based on only two months’ pay. He also said that both of the company’s factories in Changchun are upgrading the production lines, therefore offering more holidays for workers with reduced wages.

Caixin received an internal document which shows that FAW-Volkswagen earned ¥62.1 billion profit last year. The target for this year is ¥55 billion. If the target could be met, the company would issue 95 percent of last year’s bonus, and the wages would remain the same. Whether or not the company will issue this bonus during the second half of this year is still pending.

 

Longest vacation

In addition to pay cuts, FAW-Volkswagen employees will be offered the “longest vacation in history” during the state-owned FAW Group’s founding anniversary.

FAW will celebrate its anniversary around July 15. Normally during busy times, there would be less than a week vacation. The Chengdu factory which was put into operation in 2011 is responsible for manufacturing the company’s primary models the Sagitar and Jetta. Due to its high output volume, it was seen as the “busiest” factory in FAW-Volkswagen. It gave employees only three days off in 2012 and 2013 and none last year.

Li did not give a direct response to the number of vacation days this year, saying that “it is not necessary to speculate.”

However, a company’s internal email sent out on June 24 by the production management department said that the two shifts of workers in the Chengdu factory would have up to 13 days off, and the two factories in Changchun will also have two weeks off. Moreover, workers from its Audi-3 production line will have up to 17 days off.

The employee from the planning department explained that the extended holiday is due to the slow sales during the first half of this year. Dealers purchased less cars and the company is cutting the production to lower inventory. The employee added that the two weekends following July would be two-day off instead of one-day off. Next year, there may be two work shifts instead of the current three. Therefore, the number of interns and workers might be reduced.

 

Drop in sales

FAW-Volkswagen has seen a two-digit drop in sales since April. Official statistics from the company shows that April sales were 127,200 vehicles, 14.7 percent less year-on-year, and sales in May were 132,600 units, down 14 percent. Data from the China Passenger Car Association indicates that the May sales were actually 125,200 units, 22 percent less year-on-year. The primary models Magotan, Bora, Sagitar and Jetta all suffered a sales slump, with Magotan dropping by up to 26.1 percent during the first five months.

Li told Caixin that many factors contributed to the sales slump. First, some primary models are being upgraded, affecting production. Second, there is a downturn in the Chinese sedan market with the country’s economic slowdown. Third, FAW-Volkswagen had a sales increase of 30 percent last year. It is difficult to repeat such a high performance.

“We are still optimistic about the market despite the short-term sales drop,” Li said. “We plan to sell 1.85 million vehicles this year, slightly higher than last year. And our goal is 3 million by 2020. The company will also introduce new car models.”

A market analyst believes that although the entire passenger car market is stagnant, the sales decline of FAW-Volkswagen is still worse than other companies, primarily because of the company’s internal problems. First, while other carmakers are offering consumers more SUVs and multi-purpose vehicles, FAW-Volkswagen still depends heavily on sedan models such as the Magotan, Bora, Sagitar and Jetta, introducing few new models. Plus, the recalls due to the DSG and its new Sagitar quality problems have harmed the company’s reputation.

The analyst said that Volkswagen’s technical advantage is not as obvious as before. As BMW, Ford, GM, PSA Peugeot Citroën and Toyota have introduced their own turbocharged engines, FAW-Volkswagen’s advantage of the TSI+DSG is fading away.

FAW-Volkswagen may speed up the introduction of new models after the expected increase of Volkswagen equity share in the JV by 9 percent. Two new facilities in Qingdao and Tianjin are expected to start construction this year, and are scheduled to go into operation in 2017 and 2018 respectively. The two new assembly plants will make SUVs. Insiders disclosed that the first group of SUVs is very likely to be the Golf and CrossBlue. However, others worry that since FAW-Volkswagen will not introduce its SUV until 2018, the market by then may move on to the next fashion and it may be difficult for FAW-Volkswagen to turn the table around by focusing on SUVs.

(Rewritten by Kun Xu based on author’s article published on caixin.com)

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