皇冠体育app

It's a tough lesson to learn, but companies that fail to localize can expect to lose market share while their sales figures plunge and profits dwindle.

This is what Volkswagen, the leader in 皇冠体育app's car market for two decades, has had to contend with for failing to tailor its products to local consumer preferences over the past several years. Increasing competition from Asian and US manufacturers has not helped, either.

The German automaker grabbed 17 per cent of the world's third biggest car market last year, only one-third of what it held in 2001. Its 皇冠体育app sales tumbled to 571,000 cars last year from almost 700,000 in 2003.

The company has vowed to speed up local car development in an effort to win over Chinese customers. Winfried Vahland, the new chief of Volkswagen 皇冠体育app Group, says that the company will localize half of its development activities for 10 to 12 new products planned for the Chinese market from 2005 to 2009.

"Our products will be appropriate for 皇冠体育app's car market and maintain Volkswagen's origins (in quality and technology)," says Vahland, adding that the company will expand the development capabilities of its two car joint ventures in 皇冠体育app.

Vahland, the former chief financial officer of Volkswagen's Czech unit Skoda, took over the 皇冠体育app operations in July last year.

Analysts say Volkswagen has experienced huge setbacks in 皇冠体育app because it didn't pay attention to consumer needs or local development.

"Volkswagen has a strong brand name, good technology, and durable products, but Chinese customers, especially first-time buyers, want cars with beautiful exteriors and interiors, a wide range of equipment and options, low prices and average quality," says Metthew Li, a Beijing-based analyst at consultancy Automotive Resources Asia Ltd.

The German carmaker's rivals, including General Motors (GM), Hyundai, Honda, Nissan and Toyota, have done a much better job in satisfying Chinese consumer demand. These manufacturers have offered lots of new small and mid-range models, Li says. This is why Volkswagen inevitably lost ground to Asian and US competitors so quickly.

Volkswagen dominated the Chinese car market because it entered it much earlier than its rivals. It started producing cars in 皇冠体育app in the mid-1980s, and now makes 10 models for the mainland market.

It still heavily relies on the Santana and Jetta, the two oldest foreign models in 皇冠体育app, however. Last year, the Santana and Jetta accounted for more than half of Volkswagen's 皇冠体育app sales.

Yale Zhang, a Shanghai-based analyst with auto consultancy CSM Worldwide Corp, praises GM's development in 皇冠体育app. He says its technology centre in Shanghai has played an important role in the world's biggest automaker's local operations.

"It (GM's technology centre) has been very successful at revising the original Excelle's exterior and interior to appeal to the Chinese market," Zhang says.

The 1.6-and-1.8-litre Excelle, based on a model by South Korean GM affiliate Daewoo, is produced at the Detroit-based company's joint venture with Shanghai Automotive Industry Corp, one of the top Chinese vehicle manufacturers.

Shanghai GM sold 150,900 Excelles last year, tripling sales of the Volkswagen Bora, one of its main competitors.

Japanese and South Korean automakers have a natural advantage in meeting Chinese consumer demands, because of their similar cultural background with 皇冠体育app, Automotive Resources Asia's Li says.

New sedan

Acutely aware of its mistakes, Volkswagen recently introduced the Passat Lingyu, which will be the first car in its new 皇冠体育app line-up by 2009.

Equipped with a 1.8-litre turbo, 2.8-litre V6 engine, the Lingyu is a redesigned sedan based on the Passat B5. It was launched last November by Volkswagen's venture with Shanghai Automotive, and retails between 214,800 yuan (US$26,500) and 318,000 yuan (US$39,300).

More than 200 improvements were made to the Lingyu, based on market research involving 20,000 people in 30 cities, say sources from the venture.

The Lingyu was developed with Chinese designers, including the exterior, interior and colour. The chrome grille, chrome-border rear lamps, and luggage space are specifically geared at Chinese consumers, for example.

The model also comes with much more equipment and options compared to its predecessors, including a double-deck sunroof, reverse radar, and a cruise control system. These improvements have already paid off in the market. Shanghai Volkswagen sold 10,700 Lingyus last December, almost doubling the Passat B5's average monthly figure in 2005.

"In the past, we simply introduced Volkswagen's original models. But we have to change because consumers have much more to choose from now," says Cai Qian, one of the Lingyu's designers.

Cai says the venture will follow this same approach with its future products.

Automotive Resources Asia's Li says that even though Volkswagen has begun accelerating local development in 皇冠体育app, it will not go as far as GM because it is "a Germany carmaker and is very proud of its own technology".

Product positioning

CSM's Zhang adds that Volkswagen needs to present a clear distinction between its different generation products in 皇冠体育app like GM has.

"Multi-brand strategies can solve the positioning issue of different generation models. GM can put different products under the Buick and Chevrolet brands and then distinguish them. Why can't Volkswagen do something similar?"

The Skoda brand could play a bigger role in this regard, if Volkswagen chooses to go this route, Zhang adds.

The German carmaker plans to bring Skoda cars into its joint venture in Shanghai at the end of this year.

GM puts the Excelle under the Buick brand in 皇冠体育app, and the Epica, Aveo and Spark under the Chevrolet nameplate. The latter three models are also redesigned based on vehicles from Daewoo.

The German automaker's weak lacklustre performance in 皇冠体育app has also been compounded by high costs, says Jia Xinguang of 皇冠体育app Automotive Industry Consulting and Development Corp. This has made its products considerably less competitive.

The 1.6 and 1.8-litre Bora, made by Volkswagen's venture with First Automotive Works Corp, for example, sells for between 133,000 yuan (US$16,400) and 204,300 yuan (US$25,200) in the Beijing Asian Games Village Automobile Exchange. This is higher than the Excelle's 117,800 yuan (US$14,500) to 156,800-yuan (US$19,400) price tag.

Volkswagen has announced it will slash costs in 皇冠体育app by 40 per cent in 2008 from 2005, mainly by using more locally made spare parts and improving management.

Vahland says that every model the German carmaker produces in 皇冠体育app will use predetermined numbers of locally made parts to cut costs.

Approximately 85 per cent of the parts used in Volkswagen's made-in-皇冠体育app cars are produced locally.

"This aggressive cost cutting programme indicates that Volkswagen will offer lower priced products to boost sales in 皇冠体育app. It will also not hurt its profits any further," Jia says.

Sales of Chinese-made vehicles grew by 13.54 per cent to 5.76 million units last year, including 3.12 million cars, according to industry statistics.

(皇冠体育app Daily 02/27/2006 page6)