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Volkswagen should respect Chinese consumers

BEIJING – FAW-Volkswagen will recall 563,605 New Sagitars due to a possible defect in the rear suspension system starting on February 2, 2015, according to a statement released by China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) on October 17. 

The company said it will fix metal plates to the rear torsion crank axle, which will stabilize the vehicles and emit warning noises in case of cracks. This solution irked owners, leading to nationwide protests in over 100 cities of more than 20 provinces, according to local media reports. Chinese consumers have asked for the entire axle to be replaced because they do not believe the remedy offered by FAW-Volkswagen eliminate the defect.

However, Soh Weiming, executive vice president of Volkswagen Group China (VGC), said in a press conference recently that “the axle is safe and installing the metal plate is like ‘providing a double assurance.’” VGC President and CEO Jochem Heizmann said at an earlier media event in Shanghai that the New Sagitar is a safe car with a safe axle, according to a report on China Daily.

The conflict between the Sagitar owners and FAW-Volkswagen exists because of owners’ distrust and the German automaker’s arrogance. A Volkswagen spokesman reportedly said that the safety problem occurred when a car was involved in a rear-end collision and the axle was damaged but the driver did not notice it.

Volkswagen seems to have a habit of attributing the problems of its cars to Chinese drivers, He Lun, guest columnist of CBU/CAR, wrote in his blog on sina.com.cn. The company’s DSG problem was ascribed to Chinese consumers’ driving habit when it occurred about two years ago, causing an unprecedented and controversial recall and much national exposure.

Volkswagen has not achieved any improvement in communications between the company and consumers, different internal departments and executives and subordinates, and this is a result of the German company’s long-existing arrogance in China, wrote He in the blog. After the DSG crisis, Volkswagen’s sales in China still remained flourishing, making the company even more arrogant, according to He. 

It is not wise for Volkswagen to ignore Chinese consumer demands because the automaker has a very high dependency on the largest automotive market of the world. China’s contribution to Volkswagen’s global sales has increased steadily from 2010. The share of Volkswagen’s profits in China in its global profit also kept rising except a slight decline in 2011. Volkswagen-badged vehicles sold in China accounted for nearly half of the brand’s global sales in the first three quarters of this year. Sales of the brand increased 15.3 percent in the first nine months of this year and Volkswagen Group has great expectations for the Chinese market, setting a target of selling 4 million vehicles in 2018.

 

China’s contribution to Volkswagen’s global sales

 

Volkswagen’s operating profits in China and globe

 

Sales of Volkswagen brand in China and other regions in Q1-Q3

 

 

Volkswagen brand vehicle sales increase in China and other regions in Q1-Q3 of 2014 

Company/Region Sales change (%)
Korea 26
China 15.3
Germany 4.5
Central and East Europe -8.8
United States -14
South America -19.3
Russia -20

What happens if Volkswagen loses the Chinese market?

Sales of top 10 automakers globally in 2013 (in million units)

 

It will be hard for Volkswagen to remain No. 3 globally if its sales in China decrease by a quarter. The company will not be among the top 3 and top 5 automakers if the sales decline 50 percent and two-thirds respectively.

Despite the huge contribution of China to Volkswagen, the company still lacks sincerity and respect for Chinese consumers. This can be partly proved by a statement published by FAW-Volkswagen in July before AQSIQ started investigations on the New Sagitar’s problem, saying that the car’s problem is an individual case and the company will retain the right to take any legal action on consumers that spread rumors. 

Volkswagen’s arrogance is caused by many factors in China. As the first foreign automaker to enter the Chinese market some 30 years ago, Volkswagen has cooperated smoothly with its two Chinese partners FAW and SAIC, cultivating a positive brand image in the world’s largest automotive market. Both vehicle volume and brand recognition are very high. Many Chinese consumers think that the brand’s vehicles have an excellent reliability. The difficulties facing the Japanese brands due to sensitive Sino-Japanese relationship have also indirectly helped the German brand.

In a way, Chinese consumers have also contributed to Volkswagen’s arrogance because they still believe in the brand and are keen on buying the brand’s vehicles even after mass negative reports on the DSG problem more than a year ago, according to Zhang Zhiyong, guest columnist of CBU/CAR.

Chinese consumers will have more choices of cars to buy as Korean, American and Chinese brands expand in China. “Volkswagen’s brand image will be hurt and sales performance will undoubtedly be affected if the company fails to resolve the New Sagitar’s problem effectively,” said Zhang.

As the proverb goes, “attitude decides everything.” Volkswagen would see a decline in sales in China sooner or later if it does not change its attitude towards Chinese consumers, commented He.

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