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China automobile

Sherif Ali
Sherif Ali

1) VW had early success in China from the 1990s-2004 due to its alliance with SAIC, localization efforts, and focus on quality and simple products. 2) However, by 2004 VW faced issues as costs rose, market share fell, and customer preferences changed requiring more flexible products. 3) VW launched a "Start from Zero" change program to develop a more sustainable strategy, including modifying product design and restructuring sales and distribution networks.

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China automobile
China automobile
Historic Development Historic Development 1953-65 Initial Stage Current State 1966-80 Growth Stage VW competitive position Open Market Stage 1981-90 VW versus GM 1991 Comprehensive Development Future Development NOW Current State of Economy Conclusion
1. Initial Stage 50s mid 60s Historic Factories job was to copy and assemble Development automobiles. Current State By 1965, 21 plants VW competitive position 2. Growth Stage VW versus GM mid 60s early 80s Future Governments policy was to construct Development Regional Industries. Conclusion By 1980, 53 plants out of 2379 enterprises 12.5% sedans
3. Open Market Stage mid 80s early 90s Historic Radical restructuring. Development Increased investment to meet demand. Introduction of foreign technology, foreign technology Current State and management support. VW competitive 4. Comprehensive Development position since 90s VW versus GM Automobile industry became core part of Chinese economy. Future 15% Average annual growth. Development Enterprises are forced to improve products and service quality. Conclusion Switch from trucks to sedans.
Market Restrictions Historic Foreign companies were only allowed to make joint Development ventures of no more than 50% with local companies and localize 40% of the parts and components to encourage Current State the local industry. High protectionism measures VW competitive Government was keeping brakes on the market position Regardless of their ranks, Government Employees were VW versus GM banned from purchasing cars Imports quotas and tariffs Future Non-attractive market due to Consumer behaviors: Development 1. Preferring cash purchases 2. Preferences made on emotional factors and Conclusion intangible attributes rather than efficiency or speed
China automobile
Current state of the Economy Historic Development Market Structure Current State Global China VW competitive 6+3 3+X position Large Motor FAW VW versus GM Groups Future Independent DFMC Manufacturers Development Conclusion SAIC
Current state of the Economy Historic Development 6 + 3 Status Guiding Principles: Current State Form larger competitive groups VW competitive position Strategic reorganization VW versus GM Intensive R & D Start International cooperation Future Development Conclusion
Current state of the Economy Historic 3 + X status Development First Automobile Workshop FAW 10 b$ revenue Current State 22 joint ventures includes: Audi & Mazda VW competitive Dongfeng Motor Corporation position 6 b$ revenue joint ventures: Nissan, Citroen & Kia VW versus GM Shanghai Automobile Industry Corporation SAIC the biggest group in china, >10 b$ revenue Future Development strong ties with government officials 52 joint Ventures: VW & GM Conclusion
Current state of the Economy 2004 Historic Development Enterprises: majority are state owned Current State account for 30% of production VW competitive Sales: position 4.44 million units VW versus GM Imports and Exports, 2003: import: 171,903 units of 5.29 b $ Future export: 47,439 units of 370 m $ Development in 2006, reached 340,000 units Conclusion
Current state of the Economy 2004 Sales ratios Historic Trrucks Development 28% Sedans 45% Current State Passenger Cars 27% VW competitive position VW versus GM Enterprises Number 4000 Future 3000 2904 2596 2326 Development 2000 1228 Enterprises 1000 522 Number 104 Conclusion 0 1956 1960 1965 1970 1975 1980 1985 1990 1995 2000
Current state of the Economy Historic Development Joining WTO, 2001 Decrease tariffs 10% annually for sedans Current State and 4-8% for trucks and passenger cars. VW competitive Complete cancellation of quotas in 5 years. position Cancellation of restrictions of importing critical parts. VW versus GM Allowance of 100% FDI Future Adoption of international after-sale services Development Removal of protectionism Conclusion
What worked for VW up till 2004? Historic Development VW Strategy Strong alliance with SAIC High growth & demand in China Middle class SAIC is a SOE First Mover income jumped Strong policy advantage from USD $ support Simple Current State 460- $1091 technology, Localisation Option of car with local simple product financing by suppliers with High German VW state owned SAIC support Quality competitive banks Domestic Low 30% annual content soared investment for position growth rate to 70% in early distribution 90s network High op. VW versus GM margin: 30% vs. R.O.W 5% Future Development Conclusion
VW Competitive Position by 2004 Summer 2004 VW faced critical issues: Historic Development Weak Sales and product High Cost structure teams Current State VW Change in Customer competitive Changing Market; Profile: Simple position market share plunge to technology, simple 16% products strategy no longer works! VW versus GM Future Losing First Mover Development Advantage! Conclusion
VW Change Management Programme Historic Start from Zero change Development management programme Current State VW competitive Marcus Sch端tz, Director was tasked position to design and implement change VW versus GM initiatives over next 3 years. Develop new set of success factors Future Development that is sustainable! Conclusion
VW Dilemma Historic Development Sales infrastructure FAW vs. SAIC Modification of Current State Product Strategy Reselling and distributing Bitter competitors VW done by SAIC a failure Separate distribution German standards= Lack of control of S&M networks and supply overdesigning competitive SVW Sales Corporation: bases Little flexibility for 24 RSSCs and 700 dealers Impossible to create consumer preferences position too late synergies btw SAIC and CKD transfer to local B2B to B2C structure FAW bases High cost management Weak negotiation point VW versus GM Future Development Conclusion
GMs issues Historic Development Current State VW competitive position Slow turnaround time VW versus GM Poor business strategy Future Development Burdened with high cost eg pensions benefits Conclusion Financial crisis and prospect of bankruptcy
VW vs. GM in China Historic First mover advantage Development S&M retrieved from SAIC too late Current State VW Fear of losing technology advantage German Quality standard=overdesign VW competitive position S&M in their control from day one VW versus GM Channel of technology transfer Future Development GM Left localization to local automakers Build a component industry Conclusion

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China automobile

  • 3. Historic Development Historic Development 1953-65 Initial Stage Current State 1966-80 Growth Stage VW competitive position Open Market Stage 1981-90 VW versus GM 1991 Comprehensive Development Future Development NOW Current State of Economy Conclusion
  • 4. 1. Initial Stage 50s mid 60s Historic Factories job was to copy and assemble Development automobiles. Current State By 1965, 21 plants VW competitive position 2. Growth Stage VW versus GM mid 60s early 80s Future Governments policy was to construct Development Regional Industries. Conclusion By 1980, 53 plants out of 2379 enterprises 12.5% sedans
  • 5. 3. Open Market Stage mid 80s early 90s Historic Radical restructuring. Development Increased investment to meet demand. Introduction of foreign technology, foreign technology Current State and management support. VW competitive 4. Comprehensive Development position since 90s VW versus GM Automobile industry became core part of Chinese economy. Future 15% Average annual growth. Development Enterprises are forced to improve products and service quality. Conclusion Switch from trucks to sedans.
  • 6. Market Restrictions Historic Foreign companies were only allowed to make joint Development ventures of no more than 50% with local companies and localize 40% of the parts and components to encourage Current State the local industry. High protectionism measures VW competitive Government was keeping brakes on the market position Regardless of their ranks, Government Employees were VW versus GM banned from purchasing cars Imports quotas and tariffs Future Non-attractive market due to Consumer behaviors: Development 1. Preferring cash purchases 2. Preferences made on emotional factors and Conclusion intangible attributes rather than efficiency or speed
  • 8. Current state of the Economy Historic Development Market Structure Current State Global China VW competitive 6+3 3+X position Large Motor FAW VW versus GM Groups Future Independent DFMC Manufacturers Development Conclusion SAIC
  • 9. Current state of the Economy Historic Development 6 + 3 Status Guiding Principles: Current State Form larger competitive groups VW competitive position Strategic reorganization VW versus GM Intensive R & D Start International cooperation Future Development Conclusion
  • 10. Current state of the Economy Historic 3 + X status Development First Automobile Workshop FAW 10 b$ revenue Current State 22 joint ventures includes: Audi & Mazda VW competitive Dongfeng Motor Corporation position 6 b$ revenue joint ventures: Nissan, Citroen & Kia VW versus GM Shanghai Automobile Industry Corporation SAIC the biggest group in china, >10 b$ revenue Future Development strong ties with government officials 52 joint Ventures: VW & GM Conclusion
  • 11. Current state of the Economy 2004 Historic Development Enterprises: majority are state owned Current State account for 30% of production VW competitive Sales: position 4.44 million units VW versus GM Imports and Exports, 2003: import: 171,903 units of 5.29 b $ Future export: 47,439 units of 370 m $ Development in 2006, reached 340,000 units Conclusion
  • 12. Current state of the Economy 2004 Sales ratios Historic Trrucks Development 28% Sedans 45% Current State Passenger Cars 27% VW competitive position VW versus GM Enterprises Number 4000 Future 3000 2904 2596 2326 Development 2000 1228 Enterprises 1000 522 Number 104 Conclusion 0 1956 1960 1965 1970 1975 1980 1985 1990 1995 2000
  • 13. Current state of the Economy Historic Development Joining WTO, 2001 Decrease tariffs 10% annually for sedans Current State and 4-8% for trucks and passenger cars. VW competitive Complete cancellation of quotas in 5 years. position Cancellation of restrictions of importing critical parts. VW versus GM Allowance of 100% FDI Future Adoption of international after-sale services Development Removal of protectionism Conclusion
  • 14. What worked for VW up till 2004? Historic Development VW Strategy Strong alliance with SAIC High growth & demand in China Middle class SAIC is a SOE First Mover income jumped Strong policy advantage from USD $ support Simple Current State 460- $1091 technology, Localisation Option of car with local simple product financing by suppliers with High German VW state owned SAIC support Quality competitive banks Domestic Low 30% annual content soared investment for position growth rate to 70% in early distribution 90s network High op. VW versus GM margin: 30% vs. R.O.W 5% Future Development Conclusion
  • 15. VW Competitive Position by 2004 Summer 2004 VW faced critical issues: Historic Development Weak Sales and product High Cost structure teams Current State VW Change in Customer competitive Changing Market; Profile: Simple position market share plunge to technology, simple 16% products strategy no longer works! VW versus GM Future Losing First Mover Development Advantage! Conclusion
  • 16. VW Change Management Programme Historic Start from Zero change Development management programme Current State VW competitive Marcus Sch端tz, Director was tasked position to design and implement change VW versus GM initiatives over next 3 years. Develop new set of success factors Future Development that is sustainable! Conclusion
  • 17. VW Dilemma Historic Development Sales infrastructure FAW vs. SAIC Modification of Current State Product Strategy Reselling and distributing Bitter competitors VW done by SAIC a failure Separate distribution German standards= Lack of control of S&M networks and supply overdesigning competitive SVW Sales Corporation: bases Little flexibility for 24 RSSCs and 700 dealers Impossible to create consumer preferences position too late synergies btw SAIC and CKD transfer to local B2B to B2C structure FAW bases High cost management Weak negotiation point VW versus GM Future Development Conclusion
  • 18. GMs issues Historic Development Current State VW competitive position Slow turnaround time VW versus GM Poor business strategy Future Development Burdened with high cost eg pensions benefits Conclusion Financial crisis and prospect of bankruptcy
  • 19. VW vs. GM in China Historic First mover advantage Development S&M retrieved from SAIC too late Current State VW Fear of losing technology advantage German Quality standard=overdesign VW competitive position S&M in their control from day one VW versus GM Channel of technology transfer Future Development GM Left localization to local automakers Build a component industry Conclusion
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