Serving the World's Largest Emerging Automobile Market
Home > Commentary > Is the SAIC-Audi tie-up a win-win or a negative-sum game? (III)

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

Now it may be a little late for FAW and Audi to talk about establishing a JV sales company, but it’s better late than never.

However, the SAIC-Audi cooperation has already begun. If it falls through just because FAW and Audi are going to establish a JV sales company, what is SAIC to Audi? A playing card that Audi has used to force FAW to set up a JV sales company? If that is the case, Audi’s leadership will be seriously questioned, and Audi itself will also lose its reputation as a world-renowned luxury car brand. But on the other hand, Audi cannot turn a blind eye to the strong demands from the dealers. For starters, it has to solve the most immediate problem – the ¥28 billion loss – and at the same time win approval from FAW and even Volkswagen. So now Audi really is in a dilemma.

When Volkswagen decided to work with FAW, SAIC was very unhappy about it. Over the years, these two joint ventures have fought hard with each other, but in the end the two have become top car makers in China. They are the biggest taxpayers and money makers in the Chinese auto industry, and Volkswagen is firmly in the lead in the Chinese passenger car market. In 2016 alone, sales were up to almost 4 million vehicles. So instead of hurting each other, the Chinese shareholders of both the two joint ventures and their dealers have really earned large profits (with the exception of the Audi dealers in the past 3 years).

If Volkswagen hadn’t established a joint venture with FAW at that time, it would not be so strong in the Chinese market, and SAIC-VW would not be much stronger than it is today. In other words, if the two joint ventures hadn’t fought so hard for vehicle models, Volkswagen would not have had enough models to cover almost every market segment, as it does today, and would not have developed those “legendary” models specially made for the Chinese market.  

Now that Audi has encountered its bottleneck in development and is trying to break it by working with SAIC, it should be a common business move. Audi did not expect things to become mired in the huge losses of the FAW-VW Audi dealers. Now with the media adding fuel to the flames, things seem to have gotten so much more difficult and complicated.  

Looking at this cooperation objectively and rationally, if this SAIC-Audi tie-up really works out, it will definitely bring pressure on FAW-VW Audi and FAW, but in the long run, it will also encourage FAW-VW Audi and SAIC-Audi to fight harder. And for the sake of its own interests and its overall China strategies, Audi, as the owner of the brand and technologies, will never let this fight become a dog-eat-dog competition and will try everything it can to allocate its limited resources between the two partners in an effective and balanced manner, including finding a way to make the FAW-VW Audi dealer network and the SAIC-Audi sales network complement each other.

From FAW’s perspective, with its own strengths and resources, and especially the strong system formed by FAW-VW Audi in the past 20 years, it should be confident enough to gain the upper hand in the competition with SAIC-Audi, and in the process it can grab more market share together with SAIC-Audi to achieve the same kind of synergy as FAW-VW and SAIC-VW and gain substantial profit. At the same time, the dealers’ problems will also be solved. So this is going to be a win-win game.

And if the SAIC-Audi cooperation is blown out, how much longer can FAW-VW Audi withstand the pressure and maintain its momentum? And even if the dealers get compensation, how sure are they to make profits in the future?

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

| | | | | | | | | | |

Leave a Reply