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VW seeks new China boss as GM, Hyundai crank up competition

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VW seeks new China boss as GM, Hyundai crank up competition

Bloomberg News April 26, 2010 09:21 CET

BEIJING (Bloomberg) -- Volkswagen AG's new head of China will have a tough act to follow: current chief Winfried Vahland brought home a $1 billion profit for the German carmaker last year after reversing losses and a slumping market share.

Vahland, who has overseen the China division for five years, is leaving in the second half to return to the Czech Skoda unit and replace Reinhard Jung. Former Continental AG Chief Executive Officer Karl-Thomas Neumann, hired by VW last November, is a candidate to replace Vahland, a person familiar with the matter said earlier this month.

The task for Vahland's successor will be to claw onto his market share gains as Hyundai Motor Co. and General Motors Co. speed up the development of new cars for an increasingly finicky public. VW needs to update aging products as GM introduces 25 new or refreshed models in China by the end of next year, according to IHS Global Insight's Lin Huaibin.

“VW needs to get a better understanding of what the local Chinese customers want,” said Lin, a Shanghai-based auto analyst at Global Insight. Local buyers are showing “greater demand for modern cars, fuel efficiency and safety provisions.”

Volkswagen, the biggest overseas maker of passenger cars in China and the first to enter the market three decades ago, is relying on two “very old-fashioned” 1980s vehicles, the Santana and Jetta sedans, Lin said. The models together accounted for almost a one-third of VW's 1.4 million deliveries to Chinese customers last year, he said.

GM plans model offensive

Detroit-based GM announced plans April 12 to add hybrids, plug-ins and electric vehicles, including the Chevrolet Volt plug-in car, within the next five years in China, which passed the U.S. as the No. 1 automobile market last year. Hyundai, South Korea's biggest carmaker, intends to build a new model at its third Chinese plant, it said last week in Beijing.

VW plans to invest more than 4 billion euros by 2012 on new models and plant expansions in China, its largest market. VW, which rolled out the Passat CC sedan at the Beijing auto show, plans seven new introductions in China this year, Vahland said in an interview in Beijing.

A Tiguan SUV introduced earlier this year has attracted more than 90,000 advanced orders, and VW expects its updated Phaeton luxury sedan, unveiled in Beijing last week, to help double the model's deliveries this year to more than 3,000 cars, Vahland said.

“There's a seemingly endless lust for mobility in China and VW is right at the center of this astonishing development,” Volkswagen CEO Martin Winterkorn said at the Beijing show. “China has become a second home market for VW.”

Slumping share

VW's Chinese market share grew to 16.6 percent last year from 15.1 percent in 2005, according to estimates from IHS Global Insight. Before Vahland's arrival, the market share had plunged to 15.1 percent in 2005 from 47 percent in 2000. Last year, Hyundai accounted for 10.1 percent of Chinese car sales, while GM had 9.1 percent, according the Lexington, Massachusetts,-based research company.

Vahland, who was chief financial officer of Skoda before being named to the China position, slashed expenses 40 percent, boosted production and reduced the number of model platforms. The result: Volkswagen China last year posted an operating profit of 774 million euros ($1 billion).

Vahland succeeded by coordinating sales, purchasing and local technology projects to resolve a feud between VW's two joint ventures, which previously saw each other as “key competitors,” said Global Insight's Frankfurt-based analyst Christoph Stuermer. “If he hadn't done that, they might have lost touch and fallen behind.”

Smaller, cheaper models needed

VW in 2009 introduced the Passat New Lingyu, developed at its joint venture in Shanghai, as part of a plan to create vehicles specifically for China and reach a target of selling 2 million cars in the country by 2018.

The company also plans to start producing battery-powered cars in China as soon as 2013. VW presented the E-Lavida in Beijing. An electric version of the Golf and the Lavida will be tested in China as preparation for a broader market launch. The E-Up electric version of the Up minicar is due to go on sale in China in 2013.

Still, VW needs smaller and cheaper models developed for the Chinese market to lure buyers once government incentives introduced to boost purchases come to an end, said Christian Aust, an analyst at UniCredit SpA in Munich.

“Volkswagen has recognized its weakness in that field and is seeking to counteract that by stepping up spending,” said Aust, who has a “hold” rating on VW shares.

Read more: http://www.autonews.com/article/20100426/ANE/100429877/1131#ixzz0mDl41Nyi

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