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Afternoon tea with Prof. Dr. Carl H. Hahn: I am part of China

As CEO from 1982-1992, Prof. Dr. Carl H. Hahn paved the way for Volkswagen Group’s entry into the Chinese market with the establishment of SAIC-Volkswagen and FAW-Volkswagen joint ventures. Following is a recap of a face to face conversation with Prof. Dr. Hahn over afternoon tea in Beijing on December 16, 2018. – Editor

BEIJING – This might have been the most interesting afternoon tea and the most interesting conversation with one of the oldest and most interesting figures in the automotive world.

Sitting in front of me and other journalists is history himself: Prof. Dr. Carl H. Hahn, the visionary 93-year-young former CEO of Volkswagen Group who was instrumental in bringing the German automaker into the Chinese market more than 35 years ago and in the process helped develop China’s modern auto industry.

During his time as CEO from 1982 to 1992, he signed the contracts on behalf of Volkswagen Group in 1984 and 1990 respectively to form SAIC-Volkswagen and FAW-Volkswagen, the two joint ventures that currently produce and sell the bulk of the German automaker’s vehicles in China. Last year, each JV sold more than 2 million vehicles in China, together accounting for more than 98 percent of the nearly 4.21 million vehicles the Group sold as a whole.

“The China project was probably the most important and rewarding project for me,” said Pro. Dr. Hahn. “As a result, I feel also very much a part of China and being married with China, I thank China for this fantastic gift in my life.”

The previous day, Prof. Dr. Hahn was awarded “Person of the Year 2018” by China Newsweek magazine honoring his pioneering role in Volkswagen’s entry into the Chinese market. He represented the award-winners of all foreign companies and was one of the 40 women and men from national and foreign companies in China getting the award for their outstanding significance for economic and industrial development over the past 40 years.

Born in 1926 in the eastern German city of Chemnitz, Prof. Dr. Hahn was the son of an industrialist. His relationship with the automotive industry began during his childhood. Before World War II his father served as a high-level executive at the automaker DKW in Zschopau, a city near Zwickau, and later at the newly established company Auto Union in Chemnitz, which later became Audi. He began his career at Volkswagen in 1954 as an assistant to Heinrich Nordhoff at the former Volkswagenwerk GmbH. When he returned to Volkswagen Group as CEO in 1982 after what he called a 10-year “immigration”, he put China on the company’s agenda, as part of his global expansion campaign at Volkswagen that began with the entry into Brazil and Mexico.

But Volkswagen’s vision for China had its detractors. Some critics described it as simply “nonsense” that would “waste millions of dollars” in China with anemic purchasing power – one car per 1,000 people.

Together with a group of other advocates, Prof. Dr. Hahn continued to call for Volkswagen to enter China and pushed for the creation of a Chinese automotive industry. After diplomatic relations between West Germany and China were initiated and a Chinese delegation visited West Germany in 1978, negotiations began a few weeks later on plans to build Volkswagen models locally in China.

Soon came the milestone in 1984, when Volkswagen became the first foreign automaker to sign a joint venture agreement to produce cars. The rest is history.

“I decided there must be a chance, we couldn’t lose,” said Prof. Dr. Hahn on the decision to enter China just two weeks after he returned to Volkswagen as CEO. “I was lucky.”

He told CBU/CAR in an email that two of his most memorable moments in China were meeting Deng Xiaoping – “the man who changed the world” – during former German Chancellor Helmut Kohl’s State Visit in 1984, and the signing of the SAIC-Volkswagen JV contract on October 10 that year with Rao Bin, then Minister of the Machinery Industry, at the Great Hall of the People.

“It was certainly the high point, the most important contract in Volkswagen’s history,” noted Prof. Dr. Hahn.

The second most important contract in Volkswagen’s history, then, might be the one signed on November 20, 1990 to establish FAW-Volkswagen. SAIC-Volkswagen brought the everyday people’s car, the Santana, while FAW-Volkswagen brought Audi, the status symbol for the newly rich and the go-to vehicle for institutions.

A little more than a month earlier on November 19, Prof. Dr. Hahn returned to Changchun, Jilin Province, to take part in the celebrations marking the 30th anniversary of Audi in China. Dr. Herbert Diess, current CEO of Volkswagen Group who also attended the celebrations, had this to say about Prof. Dr. Hahn in a LinkedIn post titled “China is our second home – thanks to Carl. H. Hahn” published on November 25, 2018:

One individual who simply could not have missed the celebration was Carl H. Hahn, the man with whom the success of the Volkswagen Group in China is so closely connected. As CEO, Professor Hahn boldly promoted the internationalization of our company in the 1980s and 1990s – and was one of the first executives to see and tap the tremendous potential that China offers the automotive industry. There were many skeptics back then who couldn’t at all picture China as an automaking country. But he championed the Volkswagen Group against all odds. I was really impressed by the way that Professor Hahn was truly venerated in China as a pioneer and a co-founder of the modern automotive industry in the country. Today, we can still learn something from his far-sightedness and entrepreneurial spirit.

Prof. Dr. Hahn recalled a key moment during discussions with FAW, where then Chairman Geng Zhaojie interrupted discussions and disappeared for an hour. He later found out that Geng was on the telephone telling his colleagues in America not to sign a contract with Chrysler after an engine contract had been signed but luckily worked in Volkswagen’s favor because the engine had been licensed from Volkswagen. He was also impressed with FAW for its efforts to dismantle the entire Jetta assembly line from Westmoreland, Pennsylvania in the U.S. which Volkswagen sold, and putting it back in motion again in Changchun.

“FAW was already a large company of importance in the truck business, they were already exporting certain components in order to buy special machinery from out of China. It gave us very strong position in China.”

SAIC Motor, on the other hand, at the time was a very small company but gave Volkswagen the basis for manufacturing and was a “teacher” regarding the realities of China, according to Prof. Dr. Hahn. “We were very valuable partner for them and they were very valuable partner for us,” he said. “They are today one of the largest companies in the world also in the area of automobiles and components. We have somebody who stopped us from making mistakes, and an eager teacher, learning very fast what we had to teach.”

Asked about the prospects of increasing stakes in the two JVs after China lifted foreign equity cap on vehicle JVs last year, Prof. Dr. Hahn stressed that the percentages really don’t matter.

“The spirit of cooperation is important, and to be a better citizen whether we have 40 or 60 percent,” he said. “It doesn’t matter leading into the future what my successors might do. The importance is the degree of intensity of cooperation and foundation.”

Prof. Dr. Hahn predicts that enormous growth will remain for the Chinese auto market over the next 20 years but with technology coming, China will probably need lesser cars than America or Europe as far as ownership per 1,000 people is concerned.

“I foresee in the next 10 years dramatic change for the people in particular metropolitan areas, in lowering cost directly and indirectly, what we see here in China in terms of electrification is certainly very interesting that China has taken leadership. I’m very proud that Audi is involved in the initiative,” said Prof. Dr. Hahn.

He emphasized that the future of the dominance of the wellbeing of a nation as well as the auto industry is determined by R&D. “We are facing now a period of enormous speed in R&D, this is sequential development and of course will change in the next 20 years our life in a very dramatic way,” he said.

Asked about his recommendation on partner FAW’s revival of the Red Flag brand, Prof. Dr. Hahn’s response was simple yet strong.

“The Red Flag should remain a symbol of China.”

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