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Things about SAIC-Audi You May Miss

Date:01-26 23:18 Source:未知 Authour:WANG ZHENG

Things about SAIC-Audi You May Miss

The SAIC-Audi Project has already been affected by a series of “ultimatums” given by FAW-Audi dealers. Now with Audi, Volkswagen Group China and FAW signing the FAW, Audi Ten-Year Business Plan and Prof. Dr. Jochem Heizmann, President and CEO of Volkswagen Group China, stating that Volkswagen will not produce Audi cars with SAIC in China before 2018, it seems that all the uncertainties in the SAIC-Audi cooperation plan have now been resolved.

Some think that according to the plan, the two sides will engage in in-depth cooperation in 21 core areas, including expanding the model portfolio locally produced at FAW-VW, exploiting new energy market segments, jointly establishing a mobile travel and digital service company, and strengthening cooperation in financial services, indicating that there is little in the way of opportunity left for SAIC-Audi.

Some think that with the signing of the FAW, Audi Ten-Year Business Plan and the commitment that SAIC-Audi won't happen until 2018, in this three-party game, the scale is now tipping towards FAW.

Some even predict that in a situation where FAW-Audi dealers are suffering large losses and are unable to turn this situation around in any reasonable timeframe, SAIC-Audi's plan of building its own sales channels may fall through, and Audi may even integrate these two sales networks.

Of course, some point out that it is only a matter of time before conflict breaks out between FAW-Audi and its dealers, with or without the SAIC-Audi project. Audi's financial statements show that in 2015 Audi, as the 10% shareholder, gained an after-tax profit of 542 million EURO (RMB 3.9 billion Yuan) from FAW-VW, which means that the total net profit of FAW-VW after tax was nearly RMB 40 billion Yuan. At the same time, however, Audi’s dealers are suffering serious losses, which has set the stage for conflict.  


Different people have different opinions. But what is really going on?

In fact, if you carefully read the information released by stakeholders and observe the international and domestic economic situation and auto market development trends, you will find the answer.

So, what might you have missed in terms of the SAIC-Audi project?

The SAIC-Audi Project has broad space for development and solid prospects for cooperation. This was the consensus that the two sides reached and the main motive for them to sign the MOU; it was also the main reason why they still stood firm even in the face of strong opposition from other stakeholders.

This broad space for development means that SAIC-Audi cooperation falls completely in line with the current national policy which encourages the utilization of foreign investment. On January 17th, Prof. Dr. Heizmann expressly indicated that Audi was moving forward with its planned cooperation with SAIC. On the same day, the State Council issued the Circular regarding Opening Wider to the Outside World and Actively Utilizing Foreign Investment, relaxing the restrictions on introduction of foreign investment in the services, manufacturing and mining sectors. Today, in the context of de-globalization, the cooperation between Audi and SAIC can become a good example of China’s welcome to foreign investment.

Additionally, the development space for SAIC-Audi is not confined to the conventional auto joint venture mode. SAIC and Audi started this cooperation project not simply to introduce some additional car models, develop a group of dealers, and make money by selling and repairing new vehicles, dealing in used vehicles, and providing traditional after-market services. As a fresh project starting from scratch, it is intended to explore a completely new automotive business model.

From what I understand, in addition to the widespread speculation that the 50:50 shareholding will bring more investment income, Audi has a deeper strategic motive for choosing SAIC as its new partner. During the early stage of negotiation, the two sides are said to have reached mutual understanding on three essential goals,

The first goal is to create a completely innovative marketing model, which will adapt to the main trends in the future intelligent internet era like O2O, AR augmented reality technology, big data, customization and sharing economy, and also take the leading position in domestic automotive circulation. What is unique about this model is that it cannot be converted from the exiting network; instead, it can only be built from scratch.

The second is to improve Audi’s brand image in an all-round way – further enhancing Audi’s image as a young, sporty, personalized and hi-tech all-round brand rather than focusing on its traditional primary position as a vehicle brand, and thereby extricating itself from the current price war in the luxury car market.

The third is to maintain reasonable profitability for dealerships and make sure that today’s network-wide losses will not happen again.

Of course, an enterprise cannot succeed without competitive products. FAW-Audi has just announced a significant expansion to its local model portfolio. In the next five years, it will localize 6 Audi e-tron models, including a battery electric vehicle model with a range of over 500km. So, in Audi’s restricted product line, what other competitive products are left for SAIC-Audi?

Apparently, at this current subtle moment, SAIC will not rashly announce any model localization plan. However, Prof. Dr. Heizmann has personally told me that Audi and Volkswagen AG had talks with FAW a long time ago about the cooperation with SAIC, and that they also raised the subject of renewing the ten-year cooperation plan at the same time. This means that while negotiating with SAIC, Audi also committed to the FAW ten-year cooperation plan. Therefore this plan was not a compromise created in response to the dealers’ “protest”; instead, it was already part of Audi’s overall planning. Since it was a considered move, how could Audi not have prepared its model allocation plan in advance? If no heavyweight model formed part of the deal, how could Audi talk SAIC into cooperation? And if SAIC-Audi does not have a promising future, why have stakeholders had such a strong reaction?

To the existing FAW-Audi sales networks, the SAIC-Audi project is not a threat, but rather a golden opportunity.

“Once SAIC-Audi is set up, the good old days of FAW-Audi dealers will be over.” This is probably the consensus view of most spectators.

Aside from whether the losses being suffered by theFAW-Audi can be called “the good old days”, is SAIC-Audi really a threat to the existing network?

In an interview at Guangzhou Auto Show, Prof. Dr. Heizmann made it quite clear that the SAIC-Audi project would not pose any threat to the existing FAW-Audi dealer network. Dr. Dietmar Voggenreiter, Marketing and Sales Director from the Board of Management of Audi AG, also emphasized in an interview in Foshan that SAIC-Audi would give priority to synergy with the existing FAW-Audi dealer network.

Unfortunately, the above remarks did not attract much attention from the media and stakeholders, and no one has dug deeper into how this network collaboration is going to be achieved.

It is rumored that SAIC-VW already had a relatively mature network approach to collaboration and was ready to start negotiations with relevant parties, but the decision to suspend cooperation and halt negotiations until March 2017 has made it impossible to bring this plan to fruition for the time being. In the absence of any win-win collaboration plan, the dealers participating in the protest were left without any form of assurance, and this was the reason why groundless media speculation spread so quickly.

“A brand new marketing model is not something that anyone can predict with certainty,” says one expert. Until the negotiation is resumed, everything will be kept highly confidential. So how exactly is this “win-win network collaboration” going to work?

From the moment the protest began, I had a strong feeling that its real purpose was not to sabotage the SAIC-Audi project. After all, many investors in FAW-Audi dealerships also own the sales networks of SAIC-VW, SAIC-Skoda and even SAIC-GM. As long as they can make money, why wouldn’t they accept another SAIC-Audi network? Besides, they should be clear that neither Volkswagen AG, with annual production and sales of 10 million vehicles, nor SAIC, with annual production and sales of over 6 million, will give up this major strategic cooperation just because some Chinese dealers make a fuss.

Based on the above analysis, I forecast that SAIC-Audi will in no way copy the existing FAW-Audi sales network, but will pay great attention to protecting the interests of the investors in the existing dealer network.

The new marketing network may involve mobile-internet-based VR/AR online car showrooms, online test drive booking, online ordering, and offline payment. Existing 4s stores may not be part of the whole process, but dealer investors who are interested can cooperate with SAIC-Audi. Of course, this is a whole new practice.

I also expect that, no matter what innovative sales model SAIC-Audi is going to adopt in the end, it is very likely that new customers will share offline maintenance services. For FAW-Audi’s existing dealers, who struggle to make money by selling cars, maintaining their profitability in maintenance must surely be good news.

Certainly, from the perspective of customer satisfaction, it is quite possible that new offers proposed by after-market O2O startup companies in recent years, like offline booking, best nearby maintenance provider recommendation, and customer service rating, will be incorporated into SAIC-Audi’s future maintenance service system. By then, the competition among networks will not be “who’s crying louder”, but rather who can provide higher quality, more convenient, and better thought-through services. Of course, no matter what changes take place in marketing and after-sale services, the final beneficiary will be the customer.

The author is a senior journalist from People’s Daily

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