VW is in a powerful position in China. Not only does it have 60 percent of the new car market, it is also the only car manufacturer making money there. But market dominance does not make life easier for VW's board member in charge of Chinese operations, Robert Buchelhofer. It is his responsibility to ensure VW maintains its position amid rapidly increasing competition. Automotive News Europe's David Murphy interviewed 57-year-old Buchelhofer in Beijing. Edited excerpts follow:
By opening the market to cheaper imports, doesn't China joining the World Trade Organization (WTO) this year represent a huge threat to the local car industry?
I strongly disagree with the notion that WTO poses a threat to Chinese car manufacturers. WTO is a logical extension of the kind of development that we have experienced over the past 10 years. With imports, we're sure the market will grow from its present level of half a million or so units a year. But that's not to say that the situation of the automotive industry in China today is not critical. There is serious overcapacity and increasing competition from a lot of new products.
What reforms do you expect WTO to bring?
We expect to see further concentration among manufacturers, a major reform of the supplier industry and fundamental improvements in the sales and service organization.
You took a long time to change. The Santana and Jetta have been around for years; now you talk about adding lots of new models.
I don't think we have been slow. We have spent $1.5 billion here so far, and will spend another $1.5 billion over the next five years. Our new Passat plant in Shanghai is one of the most modern in the world. Getting a new product from conception to market takes some time, but since I took charge of this region in 1997, we have decided on new models in three segments.
What are your product plans for China?
We have just started with the Passat, and we will product at least 30,000 this year. We will make a compact car in Shanghai, and we will make the Bora in Changchun next year, where we launched the Audi A6 last year. We are also thinking of an even smaller car.
The auto industry in China is still a long way from global standards of fitness, especially on the supplier side.
Yes, China's total automotive output is still only about half as much as a single, mid-sized manufacturer such as Fiat or Renault. So the local industry still has to grow to achieve production efficiencies and higher quality.
The supplier industry is even more fragmented than the end manufacturers.
Each group of manufacturers possesses a vertically organized exclusive supplier industry on its own. These captive networks are the major obstacles to the reorganization and competitiveness of the supplier industry. Prices are in some cases more than two to three times those of world prices. There is no way of holding these positions.
How will you streamline your suppliers?
This is a long-term exercise that we have started already. With a local content requirement of 40 percent, you learn a lot about local suppliers. They are fully aware of our requirements for price and quality and, step-by-step, they are adjusting to them. There are more than 3,000 suppliers in China. We are dealing with around 500. I expect that only some 40 per cent will be able to adjust to our standards.
How do you build the VW brand?
There is no magic touch, just hard work. Part of it entails changing our entire communications strategy. We are on the Internet in China and are designing new websites. We also are starting a new training center in Beijing for salesmen and mechanics.
Which is your most serious competitor?
There are a lot of competitors showing up now, and I am trying to judge them on their ability to bring in new products and establish a sales and marketing network. Toyota is trying very hard to get into the market, as are the Americans.