The auto industry has been good for Shanghai. When Deng Xiaoping endorsed a market economy, Shanghai entered the auto industry like a rat up a drainpipe.
Former mayor Zhu Rongji, now China's premier, swiftly attracted Volkswagen AG in the mid-1980s, more than a decade before General Motors. Now the city has asked its automakers to invest in a $4 billion Motor City, which includes a supplier park plus an automotive amusement complex. The project probably will feature a racetrack, which could help Shanghai's rumored attempt to secure a Formula One grand prix.
Volkswagen's participation in Motor City comes as no great surprise, given the automaker's heavy investment in China. Volkswagen plans to invest $1.8 billion in Asia, nearly all of it marked for the Middle Kingdom. But why isn't Volkswagen investing in the ASEAN market, the 10-nation region south of China?
After all, Southeast Asia is trying to establish a unified market by cutting tariffs. If it succeeds, the region's 500 million people should be a tempting target for automakers. But Stefan Jacoby, vice president of Volkswagen's Asia-Pacific operations, believes the region will not create a unified market anytime soon. 'We are not a strong believer in a real ASEAN economic area,' Jacoby says.
The executive made his remarks following his speech in Bangkok at the Asia-Pacific Congress, an event sponsored by Automotive News International. The Volkswagen executive predicts China and its Southeast Asian neighbors eventually will cut tariffs to boost trade. When that happens, Volkswagen's assembly plants in China will export cars. 'If you see what is going on in China, it would be a mistake to suggest that the ASEAN region could ignore China,' Jacoby says. 'It's not possible.'
When Volkswagen came to China, it created alliances with two influential partners. One joint venture partner is the Shanghai Automotive Industry Group, the nation's largest manufacturer of passenger cars. And in Changchun, Volkswagen formed a partnership with First Auto Works, China's biggest producer of vehicles.
Jacoby knows how important his company's Shanghai assembly plant is to that region's economy. He intends to seal Volkswagen's ties to that city. 'To a very large extent, where Shanghai is today came from the automotive business investment in the mid-1980s,' he says. 'We will contribute accordingly, because Shanghai was the starting point for the success of our company in China.'
It is not clear how much money Shanghai will get from VW and GM, which also has a plant in the city. Jacoby and his boss Robert Buechelhofer have had talks with the mayor of Shanghai. The site is near Volkswagen's factory, 'We will become a part of it,' Jacoby said. 'These ideas more or less all come from Volkswagen.'
Volkswagen established its first AutoStadt, or Motor City, in its hometown of Wolfsburg a year ago. Jacoby envisions a similar facility in Shanghai. Is it just an extravagant 'thank-you' to the city fathers? Not at all, he says. 'Like the AutoStadt, such a facility will bring an emotional relationship between the customers and the manufacturer.' And that will help Volkswagen market its vehicles.
But the Autostadt is not enough to protect Volkswagen's 54 percent share of the Chinese market. A large part of Volkswagen's projected investment will be used to introduce new models. VW's top seller in China is the Santana, a car that is two generations behind its European models.
With the new Passat plus a redesigned Polo - to be produced in Shanghai next year - China finally will catch up. Jacoby strongly supported an up-to-date model lineup when Volkswagen chose between the Brazilian Gol and the Passat for the Chinese market. 'The Gol had lots of carryover parts from Santana and would have been easy. But finally - and I am very glad - we said no. We will not do this again like the Santana.'
In addition, Volkswagen is rumored to have plans for an inexpensive 'China car' that could be exported to other markets. According to Automotive News Europe, the entry-level vehicle would be produced in 2003 or 2004.
Although Volkswagen will introduce new models, it won't build more factories. Production capacity is 450,000 units. Jacoby says he can satisfy market demands by making VW's two assembly plants in Changchun and Shanghai more efficient.
Although VW has cut prices to meet rising competition, its Shanghai venture remains profitable. And for the third year in a row, the Changchun plant has been 'highly profitable' as well, Jacoby says.
Which is a good thing, since VW believes it cannot back away from its plans to unveil new models. Chinese consumers will reject obsolete models, Jacoby says. 'They are some of the most demanding consumers in the world. People are paying a lot of money for their car. They want excellent service. We have to stop treating customers in China differently than in Japan, Taiwan, or the United States. It's the same marketplace.'
E-mail writer John Boley at [email protected]