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Is It Necessary for Volkswagen to Roll out a Low-price Car Brand?

Date:05-02 10:38 Authour:He Lun

——Auto Market Hotspots Q&A (123)

At the Shanghai Auto Show, a visit by Porsche executives to Zotye’s booth became a hot media topic. Some say they went there by mistake, others that they were actually curious about Chinese cars. But what matters is that the new-generation models launched by Chinese carmakers like Geely, Roewe, Great Wall, Trumpchi and Chang’an are now good enough to cause concern among the executives of multinational carmakers. Just before the auto show, in the first quarter this year, total sales of passenger vehicles reached 5,947,600. This was a year-on-year increase of 4.63%, 2.12% lower than last year’s growth. However, 8 mainstream Chinese carmakers achieved growth increases of up to 46.6%, 10 times the average market growth and far exceeding the sales growth of the mainstream JV carmakers. On the face of it this is a game of waxing-or-waning. But who are the real victims?

Is It Necessary for Volkswagen to Roll out a Low-price Car Brand?

Q: Korean cars saw a significant sales fall of 31%. Some think this was the THAAD effect, and some say it was due to the rise of Chinese brands. What do you think?

A: The impact of the THAAD effect is surely limited. French cars are not subject to the THAAD problem, but their sales were even worse – falling by up to 40% on a year-on-year basis in the first quarter. My understanding is that this is because Korean and French cars are not in a strong competitive position in the market – they are at the bottom of the  JV-brand cars, looking up at the Japanese, American and German brands and down at the Chinese brands. On the one hand, Chinese brands are on the rise right now – high-end Chinese-brand models represented by the Geely Boyue, the Emgrand GL, the Roewe RX5, the Roewe i6 and the Trumpchi GS8 are trying to compete with the JV brands; on the other hand, due to fierce competition, other JV brands are being forced to lower their prices. Positioned in the softest part of the market, Korean and French cars are being squeezed from both sides.

Q: Will this great pressure from high-end Chinese-brand models be passed on further to German brands like Volkswagen?

A: Of course it will. It is just a matter of time. At present, the direct challenge to Volkswagen from Chinese brands is perhaps Geely’s new brand – LYNK & CO. But for the time being it is still young and needs a lot of time to grow, so Volkswagen is not under any immediate threat.

Q: It is said that Volkswagen is planning to roll out a series of low-price cars, including SUVs, to directly compete with Chinese-brand cars. What do you think?

Is It Necessary for Volkswagen to Roll out a Low-price Car Brand?

A: If Volkswagen had done this two years ago, it might have worked, but the optimal moment has passed. At present, the new-generation models launched by Chinese brands like Geely, Roewe and Trumpchi have all taken a step up in terms of design, technology and quality, and even outperform some of the JV-brands, but they are priced 30-50% lower than the latter. For example, the Roewe RX5 and Geely Boyue are both offered at a starting price of about RMB 90,000 Yuan, while the mainstream JV-brand SUVs in the same class are all priced at about RMB 180,000 Yuan. If Volkswagen launches a cheap compact SUV, can they produce it to a price of RMB 90,000 Yuan? And if they can, will they be able to include so many above-grade options?

Roewe in particular provides its new-generation models with world-leading connected-vehicle technology. This is no empty boast. In March at the Geneva Auto Show, Matthias Müller himself, CEO of Volkswagen AG, said, “China is not only a huge car market, but also a global leader in technology. For example, in terms of digitalization and new mobility services, China has become a benchmark in the global automotive industry…SAIC has great strength in the internet of vehicles. On this issue, we will communicate with SAIC on a regular basis (See the article Müller: SAIC-Audi Cooperation to Continue and Volkswagen to Become a Chinese Company).”

Moreover, Volkswagen would have to launch a new brand for these low-price models. I don’t think its brand premium would be much higher than mainstream Chinese brands, nor Korean and French brands.

So I’m afraid that, facing the fierce attacks from the new-generation models of Chinese brands, Volkswagen will have to adjust its low-price car strategy and think seriously about whether this is the right time to launch a low-price brand.

Is It Necessary for Volkswagen to Roll out a Low-price Car Brand?

Q: Statistically, the sales of the 8 mainstream Chinese brands increased by 398,000 vehicles, while the sales of Korean and French brands fell by only 170,000. So who were the other victims?

A: According to the statistics currently available, both Japanese and American cars saw their sales grow by more than 20%, much higher than the average 4.6%, and their total sales increased by 300,000 vehicles. Apparently they were not the fall-guys. Sadly, the biggest victims were the non-mainstream Chinese brands. The reason was that while the total market increment was falling, consumption was moving up market. Many customers are now abandoning non-mainstream Chinese brands in favor of higher-level cars. In the past, this customer group would often have bought Korean and French cars; now they are turning to the more competitive mainstream Chinese-brand models.

From this, we can see a polarization among Chinese brands. What will be the end result of all this? Let’s talk about that next time.


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