VW to produce budget cars at FAW unit

By Liang Fei Source:Global Times Published: 2015-8-28 5:03:01

Subsidiary offers solid experience manufacturing small vehicles


FAW-Volkswagen displays vehicles at an auto exhibition in April in Fuzhou, East China's Fujian Province. Photo: CFP





The long-awaited budget-car program from German carmaker Volkswagen AG (VW) has found a potential partner and VW budget cars may hit the market before the planned deadline of 2018, media reports said.

The budget cars are expected to be produced at a subsidiary of VW's long-time Chinese partner FAW Group Corp, media reports said. The FAW Jilin Automobile Co, a FAW subsidiary in the city of Jilin in Northeast China's Jilin Province, now produces several models of small passenger cars and commercial passenger vehicles.

Analysts said that the subsidiary's experience in producing small cars as well as its well-established production capacity were the major reason it was chosen by VW to produce its budget cars.

A new FAW Jilin Automobile plant that covers an area of 700,000 square meters started production in April 2013, with a designed capacity of 200,000 units each year. The plant may expand further, as a 600,000-square-meter piece of land was also included in the blueprint.

However, the company's sales have been meager compared with its capacity. In 2014, sales of the company stood at 35,400 units and in the first half of this year, the sales number was only 17,100 units, Xinhua reported earlier this month.

VW did not comment on the reported partnership with FAW Jilin Automobile when contacted by the Global Times. But it said that by 2018 they will introduce a budget-car family to the Chinese market, which will consist of an SUV, a saloon and a hatchback model, according to a statement sent to the Global Times on Monday.

A winning hand?

VW said in the statement that the budget cars will be priced from 8,000 euros to 11,000 euros ($9,176-$12,617), a segment that is dominated by China's domestic auto brands.

Some industry insiders and analysts fear that more affordable models from big international auto brands will eat into the market share of domestic auto brands, but now it seems that even big names like VW are not able to dominate the segment, as domestic auto brands are gaining momentum.

"China's homegrown auto brands are already offering very good cars in this segment, like Emgrand from Zhejiang Geely Holding Group," Jia Xinguang, an expert from the China Automobile Dealers Association, told the Global Times on Monday, adding that VW's budget cars will face strong competition in China.

Shi Jie, editor in chief at information portal auto.gasgoo.com, also does not see VW's budget cars as a threat to domestic brands. "VW is not an expert in small cars," Shi said.

Foreign auto brands like General Motors (GM) and Nissan Motor Co have also launched budget models in China - GM's Sail model is priced between 56,800 yuan ($8861.19) and 79,900 yuan - but they still do not pose a major problem for domestic cars in the segment, according to Shi.

Analysts said that compared with domestic companies, foreign automakers may still lack expertise in cost control - cars of homegrown brands can usually offer better features than those from foreign brands at the same price level.

The budget cars of VW will be sold in China under a new brand name and a new logo, but it will be very hard for a newcomer to build influence in an oversupplied market like China, according to Shi.

VW originally planned to launch its budget cars in China in 2016, but the schedule was postponed to 2018 earlier this year. "Poor preparation in cost control has been a main reason behind the delay," Shi said.

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