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Is the SAIC-Audi tie-up a win-win or a negative-sum game? (II)

Dealers are reportedly refusing to purchase imported cars to force Audi to accept the statement, which means Audi is definitely in a dilemma. What choice it finally makes will depend not only on the decision maker’s boldness and wisdom, but also on the attitude of SAIC and FAW.

But the more important question is – even if the SAIC-Audi cooperation is further suspended or even cancelled, will it solve the problem of the FAW-VW Audi dealers’ huge losses and keep them sustainable? Will Audi really be willing to work with FAW and make it thrive again as a cash cow?

As a matter of fact, the fundamental question – why Audi is seeking cooperation with SAIC – has never been clearly answered. “To sell more cars and make more profit” or “SAIC approached Audi first” are either nonsensical or superficial. Deep down, it’s because there are some serious problems in the cooperation between Audi and FAW, and so far the two sides haven’t been able to solve them, forcing Audi to make such a choice. If you know what has been going on in FAW in terms of personnel changes and management systems in the past two years, if you understand Audi’s current challenges in brand premium and sales in the Chinese luxury car market, and if you know which side is controlling the marketing system of FAW-VW Audi, you will know what the problems are, and you will also know why they won’t repeat them aloud.

Although it is one of the most important stakeholders, FAW has said nothing about it, indicating that it finds it really hard to be open on the subject. And before Audi and SAIC started the negotiations, FAW was “notified of relevant information” but did not stop them, which was also probably for the same reasons.

It’s true that FAW has a wealth of talent, great strengths and plenty of resources, but it is also faced with historical burdens and current problems. While trying to be politically correct, it also has to work on the overall listing and compete in the market. Under this unprecedented pressure, how much confidence does FAW still have in solving the Audi issue quickly? And after encountering difficulties in the cooperation with SAIC, how much patience and time does Audi still have to wait for FAW to get its own affairs in order and then work with it to overcome the huge challenge ahead with every possible way?

If the answer is uncertain or even negative, then this will be a negative-sum game where Audi, FAW and the dealers will all lose. On the other hand, the SAIC-Audi cooperation is a nice-to-have for SAIC. If it falls through, SAIC will feel a little unhappy for a moment, but in terms of long-term interests, it will suffer no great loss

Indeed, FAW-VW did a great job in operating the Volkswagen brand, but that’s because Volkswagen and Audi are facing totally different problems and challenges:

First, Volkswagen is a leading mid-range brand, and has great strengths in sales, while Audi is a leader in sales, but has never had much strength as a brand. Especially since it lost its noble status as the “official car,” it has had to make great efforts and use all its resources to rebuild its brand image. But in the process, the two other German rivals are catching up thanks to their great brand strength.

Second, holding only 10 percent of the shares in FAW-VW, Audi has really limited say in everything and gains a very small share of the profit, so there must be some level of discontent. It’s just that this was not so obvious in the times when Audi reigned over the luxury car market, but now, with everything changing so much in recent years, the stresses are starting to show.

Third, Volkswagen AG, its import car sales company, FAW-VW and SAIC-VW are each doing their own job in running the Volkswagen brand, but as long as they don’t screw up they can always support each other and achieve synergy. However, for Audi, since the Audi import car sales network was incorporated into the FAW-VW network, the FAW-VW Audi Sales Division has been gradually taking over all of Audi’s brand building and sales work in China. In all these years, even when the Chinese media attended Audi’s global events, everything was arranged by FAW-VW Audi, and Audi China was just a supporting role and executor, not to mention in those domestic marketing campaigns. Audi’s Chinese press releases to the world are also controlled by FAW-VW Audi. Now if we look at Volkswagen China and even Škoda China, we will see they are much more active and have more control in this area.

The thing is, FAW-VW Audi Sales Division is believed to be the controller, but the brand belongs to the foreign side. Regarding specific strategies like how to build the brand and whether to focus on the sales or the brand, there is significant disagreement between the senior management on the two sides due to different values and cultural backgrounds, and a gap in understanding of Chinese market needs and competition. But in the end they have to make a decision and Audi will not be too happy because it doesn’t have enough say and influence. With regard to the second problem, today this kind of challenge is more apparent in the new situation.

If FAW and Audi had established a JV sales company at 50:50 shareholding a long time ago, perhaps there would not be any cooperation between SAIC and Audi today, and dealers would not have had to suffer such huge losses. This is not an afterthought.

(Edited based on original article on autochina.comnews.cn)

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