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VW remarks not enough to safeguard its China market

Equity increase delay – what does FAW say?

During the Guangzhou Auto Show, both Volkswagen China CEO Jochem Heizmann and executive vice president Weiming Soh revealed that Volkswagen would postpone the planned stake increase in the FAW-Volkswagen joint venture for two to three years.

Little interpretation about their statement has been given by local media.

How did they derive the two to three year time frame? Does this mean that Volkswagen would have enough money in two to three years to purchase more shares? Not likely. Volkswagen has lowered its financial budget to €12 billion ($12.78 billion) for 2016, a 30 percent decrease. It is also postponing the building of the new design center in Wolfsburg. In addition, according to Barclay’s estimate, Volkswagen will have to pay around €25 billion by 2017 for its emission scandal. Volkswagen may be poorer in two or three years.

Heizmann and Soh talked about the delay in equity share increase as if the Chinese government has already given the greenlight and the issue now is only financial. But according to available information, Heizmann and Soh, as well as Volkswagen’s new CEO Matthias Müeller who was in China a few days ago, all have stated that the equity share plan was still under government review. If the Chinese government approves the plan, who do you think should be the first to make the announcement?

Postponing a stake increase in a joint venture is a serious matter and it is strange that the FAW Group has not uttered a word about it. No matter how conservative and stubborn FAW may be, failure in making an announcement of such an important decision by a state-owned auto group would be a political blunder. When it comes to political sensitivity, Volkswagen is not comparable with FAW. Does this mean that FAW is ready to sign an equity share agreement now or does it mean the so-called “postponement” is nothing but a scam? Poor local media representatives, beware!

Verbal remarks not enough to safeguard the China market

A number of Soh’s interviews during Auto Guangzhou indicate that Volkswagen has put a heavy weight on China. Maintaining the China market is Volkswagen’s first priority and Volkswagen would stand closer to its joint venture partners. Moreover, Soh revealed that JAC has shown interest of collaboration with Volkswagen, and they are currently in touch.

Soh announced the change of Volkswagen’s marketing slogan in China from “Automobiles, only Volkswagen” to “Automobiles, for people.” Essentially this means Volkswagen admits that it has been so far promoting Volkswagen cars “only for Volkswagen.”

In the U.S., Volkswagen CEO Michael Horn publicly apologized for the emission scandal at the 2015 Los Angeles Auto Show. The company is compensating U.S. consumers each with $1,000 and running full-page ads on 30 publications saying “We’re working to make things right.”

Europeans are unhappy that cash payment was only offered to consumers in the U.S. As a result, a series measures will be taken by the company to compensate affected customers because of the massive recall.

Nothing has happened in China. For the 2,000 some units of imported diesel cars, compensation for consumers at the highest rate Volkswagen has offered in the U.S. and Europe would amount to nothing, it seems.

Tough challenge for Volkswagen’s new management in China

Nothing significant has come out of the visit by Volkswagen’s new CEO a few days ago accompanied by German Chancellor Angela Merkel. The only announcement was the collaboration memoir with the Industrial and Commercial Bank of China (ICBC). Soh revealed that Volkswagen’s plan of jointly developing three economy car models with FAW has been finalized. But it is not clear how this relates to the new CEO’s visit. Local media may also run into problem writing stories about Volkswagen “economy” models planned for China.

Volkswagen is in deep trouble outside of China. It is providing $500 Visa debit cards and $500 worth of service at Volkswagen dealers and a three-year free roadside assistance to U.S. customers of its 2.0L diesel cars, costing a total of $500 million. But Senators Richard Blumenthal and Edward Markey believe these measures are an insult to American consumers. They are asking Volkswagen to offer victims buyback options.

Frankly, the new CEO Mueller may be better off in China if he offers $1,000 in compensation for each of the 2,000 Chinese customers.

An article in Financial Times says a Volkswagen major shareholder is calling for the replacement of the new Volkswagen CEO and chairman with someone from outside the company in order to regain public trust.

Not a bad idea. Miao Wei, Minister of Industry and Information Technology (MIIT), said last week that his ministry is closely following Volkswagen emission scandal and will conduct special investigation into alleged Volkswagen emission cheating on gasoline cars.

Do not underestimate Minister Miao’s message. We have been taught since we were small by our great government that once China wakes up, a sleeping lion wakes up. Verbal promises alone are not going to work for Volkswagen. Should Volkswagen fail in China, the new CEO will unlikely be able to hold on to his job.

(Translated by Kevin Wang based on author’s article on autohome.com)

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