VW has fixed its China operations and is now set to keep its lead

Yang Jian is managing editor of Automotive News China.Yang Jian is managing editor of Automotive News China.
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The year began well for a slew of automakers operating in China. General Motors, Toyota, Honda, Geely and Great Wall have posted strong sales in January.

But the company best positioned for robust growth in the Chinese light-vehicle market is Volkswagen Group, the largest player in the market.

VW started assembling vehicles in China in the mid-1980s, long before its global peers. For many years, it was by far the largest automaker in the country.

But that position has become tenuous in recent years. VW narrowly beat GM in sales last year; its luxury brand, Audi, has lost market share to German rivals BMW and Mercedes-Benz over the past two years.

Though it has taken several years, VW has finally fixed the problems with its China operations. Now it is launching a multipronged offensive to fend off competition and boost market share.

VW has moved to plug the holes in its lineup by accelerating the introduction of new crossovers and SUVs.

In 2018 alone, it will roll out at least seven crossovers and SUVs in China under the VV and Skoda marques.

The VW brand’s China lineup features only the Tiguan, Touareg and Teramont crossovers, while Skoda sells the Yeti and Kodiaq.

While most other global automakers have finished adding production capacity in China, VW has not.

VW, which assembles vehicles in seven Chinese cities along with joint venture partners China FAW Group and SAIC Motor, will open three plants this year to ramp up local output.

One of the factories, due to start operation in March in the northeast China city of Changchun, will produce the next generation of the Audi Q5 and its derivatives.

The other two plants, in the east China city of Qingdao and the north China city of Tianjin, also will come online this year. They will mainly build crossovers and SUVs for the VW brand.

The three plants will each produce up to 300,000 vehicles a year at full capacity.

VW lacks entry-level vehicles to tap into robust demand in rural China. But that is about to change.

After weighing the pros and cons of introducing inexpensive models in China for years, VW’s management has decided to start selling vehicles priced in a range of 50,000 to 80,000 yuan ($7,900 to $12,640) under a new brand created for its joint venture with FAW.

That brand, which has yet to be unveiled, will compete with GM’s Baojun marque. Targeting rural customers, Baojun was launched in 2010. In 2017, the brand delivered nearly 1 million vehicles, accounting for a quarter of GM’s China sales in the year.

The unnamed VW brand, whose initial products will be compact crossovers, will also pose a threat to domestic Chinese brands as most of them still heavily rely on inexpensive small crossovers for sales.

In 2017, China’s overall light-vehicle sales growth slowed to 1.4 percent from 15 percent a year earlier. But demand for luxury brands, crossovers and SUVs continues to grow at a double-digit pace. While volume has reached a saturation point in big cities and coastal areas, sales across rural and inland China remained strong.

Although it has been slow to adjust to changing market conditions in China, VW is finally ready to expand on multiple fronts and increase market share across key market segments. The further bulking up of the German auto giant will inevitably exert huge pressure on other automakers, foreign and domestic alike.

You can reach Yang Jian at yangjian@autonewschina.com.

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