About 30 years ago former Volkswagen CEO Carl Hahn sought a cost-effective solution to build cars in China with First Automobile Works.
Eager to continue with his pioneering push into the country, it occurred to him that VW's failed U.S. plant might provide the answer. The Pennsylvania factory had closed in 1988 and all the tools needed to build the Jetta were collecting dust.
By moving the entire production machinery to a new plant that would be jointly operated with FAW in Changchun, Hahn had a solution to both of his problems. Risks would be minimal since everything he needed had already been written off.
With help from the affordable sedan, VW mobilized a generation by putting millions of rising middle-class Chinese behind the wheel of a new car. This helped to establish VW, together with FAW and its other local joint venture, Shanghai-VW, as the dominant automotive force in what is now the world's largest vehicle market.
Nearly three decades later, VW Group CEO Herbert Diess's decision to take responsibility for the market after the retirement of his China chief, Jochem Heizmann, highlighted the importance of the country.
"Today our Chinese operations are the most successful worldwide with benchmark productivity and quality, the best product launches worldwide -- and they are our most profitable operations," he told VW's local staff in January.
Profitability in China is at risk not only at VW Group but at a wide array of automakers. "Life looks grim in China at present," said Bernstein analyst Max Warburton, who believes the situation poses a major risk to earnings. A dreadful second half pushed the market into the red last year for the first time since 1990.
Car buyers in China have been postponing purchases in mass numbers because of trade tensions with the U.S. Particularly hard hit are automakers reliant on low-cost cars.
"The total market is cooling down, but the premium market is cooling down less," Audi CEO Bram Schot told Automotive News Europe. "What's more important is the effect on pricing. If everyone has really high expectations for 2019 and they sustain a blow in volumes, they want to correct this with lower prices. It has a huge impact."
Underlying indicators imply the trend will not change anytime soon. Beijing forecast that domestic growth will slow to as little as 6 percent in 2019, down from 6.6 percent, which represented the most anemic pace in nearly 30 years. Many economists believe the actual rate of expansion is much lower than government statistics would suggest, and VW Group only expects a stagnant overall car market this year.
"If we don't get a large and determined policy response -- and we are talking a big macro stimulus, not just a tax cut on cars -- then the industry is going to need to make substantial production cuts in the first half," Bernstein's Warburton said.
Following last month's conclusion of the annual plenary session of China's legislature, Prime Minister Li Keqiang promised all manufacturing companies a 3 percent cut in value-added tax to 13 percent.
But China's second most powerful official after President Xi Jinping warned the state would not inject the kind of massive monetary stimulus seen after the global financial crisis.