Date
17 August 2017

What lies behind FAW-Volkswagen’s success?

FAW-Volkswagen, the joint venture of China’s state-owned First Automobile Works (FAW) and German auto giant Volkswagen, is definitely in the fast lane. The company sold 1.3 million cars in the country in the ten months to October, an enviable 21 percent surge over the same period last year. It also marks one of the highest sales among all the carmakers in China and a new record since the joint venture’s establishment in 1991, dwarfing the average industry sales growth of 15 percent, according to the China Association of Automobile Manufacturers.

And, adding up the figures of Audi, which is also assembled and marketed by the firm, the aggregate sales can be well over 1.5 million units for the year, according to the Economic Observer.

One can assume that the success stems from Volkswagen’s strong presence and brand name in the country, but that is just part of the story. A well-functioning sales network has been the backbone for the joint venture, enabling it to offset some problems elsewhere.

Severe under-capacity following overcautious expansion in previous years has been an issue, while the lack of product diversity is another. With flagship marques mainly focused on family cars and sedans, the joint venture has much fewer product offerings compared to its major rivals including another Volkswagen franchise with Shanghai Automotive Industry Corp.

FAW-Volkswagen is yet to launch any products targeting the burgeoning sport utility vehicle and multi-purpose vehicle segments. In such a scenario, surmounting the challenges and selling more than a million cars is no mean achievement. It is like a player contesting in just a few events at a sports meet and still beating the rivals in terms of medal count and topping the table.

One of the secrets to FAW-Volkswagen’s success is the autonomy given to its dealers. Annual sales targets were scrapped since 2008 in an aggressive revamp; dealers can decide on their own the number of vehicles needed to replenish their stock and ensure that stockpiles and operation costs are constantly kept at low levels for better margins.

This can be reflected in stock depth, a gauge of the total stock level build up in a supply chain by comparing the number of cars in stock with monthly sales. Analysts say the average stock depth for automakers in China during the first half this year was 1.8 while FAW-Volkswagen’s figure stood at 1.2. Taking into account the cars being delivered or kept at the company’s own plants, the figure could be even better at 0.8, implying that car sales have effectively exceeded dealer inventories.

Unauthorized sub-dealers, reportedly over 500 in total nationwide, were clamped down, even though the move entailed some lost sales, as the joint venture strove to enhance its service quality. The firm even went so far as to order some of its best-performing dealers, some of whom could easily sell 8,000-10,000 cars a year, to sell fewer cars and focus more on personalized after-sales services, the Observer noted. A senior FAW-Volkswagen sales executive was quoted as saying that the firm now wants individual dealers to sell 5,000 cars a year at most.

– Contact the writer at [email protected]

RC

 

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