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Happy together: Audi, FAW and SAIC to form new sales entity in China

BEIJING – Audi AG, FAW Group and SAIC Motor are expected to form a new independent sales entity in China that will oversee distribution of Audi products made at the existing FAW-Volkswagen joint venture and those that will be made at a planned SAIC-Audi collaboration starting from 2021.

Calling it a new sales steering structure, Audi reached an agreement with FAW Group, FAW-Volkswagen and China Automobile Dealers Association (CADA) Audi Dealer Association on May 19 in Beijing for the future development of the Audi business in China.

The agreement, including the decision to set up the tripartite sales company, temporarily concludes about six months of “war of words” between the CADA Audi Dealer Association and Audi over the latter’s move in November 2016 to partner with SAIC Motor and possibly set up another sales channel. It is based on a common understanding of how the planned cooperation between SAIC and Audi will meet the interests of all parties involved.

“This very constructive agreement is a strategic milestone for Audi’s business in China,” said Dietmar Voggenreiter, Audi’s board member for sales and marketing. “It paves the way for our two partner strategy and will allow us to further strengthen our commitment to China. Together with strong partners, we will shape the future of premium mobility in China by further extending our local product and service portfolio, ensuring an attractive business for all parties.”

The agreement between the Audi stakeholders and the dealer representatives incorporates the interests of the existing sales network into the new two-pillar strategy of Audi in China. All parties reached a mutual understanding that Audi models from a potential partnership between Audi and SAIC Motor would be sold through the brand’s existing dealer network in China.

Audi and Volkswagen Group’s long-held partner SAIC are in the process of evaluating a partnership for the production and distribution of Audi models and establishing data and mobility services. The aim of the strategic course is to develop the China business profitably for all parties involved. In addition to an extended product portfolio, the two-pillar strategy would provide the existing dealer network with vast synergies for their aftersales infrastructure.

Audi, FAW Group and FAW-Volkswagen had already announced a 10-year growth plan earlier this year with the CADA Audi Dealer Association in order to develop business in China in a profitable and sustainable way. Based on the 10-year growth plan, Audi will extend its portfolio of locally produced and imported models in China. The brand will continuously deliver highly attractive premium cars, future technologies and top service to customers in China. The cooperation in the field of electric mobility will be strongly expanded, thus driving forward the development of competencies in key technologies within the JV. In the next five years, the Audi brand at FAW-Volkswagen will bring five new e-tron models to market. To advance localization, the collaboration in the field of tool making will be enhanced.

Voggenreiter told the local media in an interview that Audi, FAW and SAIC would like to establish a sales JV ideally with equity split even among the three partners and models from the SAIC-Audi collaboration will begin sales in 2022 regardless of Audi’s overall sales performance in China the previous year. He also indicated that Audi is expected to offer dealers subsidies in the range of billions of RMB and hopes that dealer earnings before taxes could reach 2 percent of sales.

All partners involved agreed that they will work diligently to try to increase Audi’s annual sales in China to 900,000 units in 2022, according to Li Yanwei, an automotive distribution industry analyst and a member of the Expert Committee of CADA. But that will not be a prerequisite for Audi to begin selling models made by the SAIC-Audi collaboration starting in January 2022, according to Voggenreiter in the media interview.

For now, it looks like the wishes of all stakeholders have been met: the existing dealers’ wish that all future Audi models, regardless of where they are produced, are sold through the existing network; Audi’s wish to build cars with a second partner in SAIC Motor; SAIC Motor’s wish to produce luxury cars with Audi. The only regret might be from SAIC Motor’s side that it cannot independently set up a new sales network for Audis made by SAIC-Audi.

“This is the best possible outcome for the three parties,” said Li in a blog post. “The agreement represents a major milestone for the distribution and sales of cars in China in that dealers have finally come together and changed the rules of the industry.”

The Audi-Chinese dealer “faceoff” has significantly affected Audi’s sales in China so far this year as sales were off 18.1 percent over the first four months of the year, reaching 154,873 units, putting it in third place behind Mercedes-Benz and BMW.

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