Image source: Duge

Photographed at the Shanghai Auto Show in April 2023

"The pressure on SAIC Volkswagen is still very high, requiring our entire team to tread carefully and fight for every second to compete in the market," said Tao Hailong, the Party Secretary and General Manager of SAIC Volkswagen Automobile Co., Ltd., in a recent public interview.

Given the current market performance, Tao Hailong's words are not exaggerated. SAIC Volkswagen is indeed facing difficult times. Firstly, production and sales have both declined in the first eight months of this year, with production falling 4.6% year-on-year to 684,000 units and sales falling 4.8% year-on-year to 678,000 units. Secondly, there are reports that while Volkswagen is considering shutting down some of its European production capacity, SAIC Volkswagen is also planning to close its plant in Nanjing, Jiangsu next year.

Although SAIC Volkswagen later responded that all production activities at the Nanjing plant are currently operating normally, many people are still concerned about whether future sales will be able to support production capacity. It is difficult to say whether SAIC Volkswagen will follow the path of some joint venture automakers in shutting down factories, laying off employees, and reducing salaries in order to reduce costs and increase efficiency.

Amid the major changes in the automotive industry, even SAIC Volkswagen, which has been rooted in the Chinese market for 40 years, is struggling. In July of this year, Tao Hailong, the former general manager of Huayu Automotive Systems Co., Ltd., took over as general manager of SAIC Volkswagen. Can SAIC Volkswagen reignite its spark under his leadership?

1

Monthly sales decline for four consecutive months ●

Founded in October 1984, SAIC Volkswagen Automobile Co., Ltd. is one of the oldest automotive joint ventures in China, jointly operated by SAIC Motor Corporation Limited and Volkswagen Group. Benefiting from its long-term presence in the Chinese market, SAIC Volkswagen has been a benchmark among domestic joint venture automakers, achieving many milestones.

For example, in November 1995, SAIC Volkswagen became the first unit in the domestic automobile industry to pass the ISO9001 quality system certification. In 2016, it became the first Chinese passenger car enterprise to exceed 2 million annual sales.

During its most prosperous period from 2015 to 2018, SAIC Volkswagen achieved sales of 1.812 million, 2.002 million, 2.063 million, and 2.065 million units, respectively, winning the title of China's top-selling passenger car brand for four consecutive years.

At that time, models such as Lavida, Passat, and Tiguan were all phenomenal in the Chinese automobile market. In 2018, the Lavida family sold a total of 504,000 units, becoming the only passenger car brand that year to exceed 500,000 sales. The SUV Tiguan was the top-selling joint venture SUV, with sales exceeding 300,000 units for the year.

Unfortunately, the market is not static. Since 2019, SAIC Volkswagen, which had dominated the market for over 30 years, began to face threats. That year, SAIC Volkswagen sold 2.002 million units, maintaining the 2 million sales mark but experiencing a 3% year-on-year decline.

In the following two years, SAIC Volkswagen's sales were 1.506 million and 1.242 million units, respectively, with year-on-year declines of 24.8% and 17.5%. Notably, during the declining sales years of 2019-2021, SAIC Volkswagen lost its position as the top-selling passenger car brand in the market to its rival, FAW-Volkswagen.

Finally, in 2022, SAIC Volkswagen showed some improvement, with cumulative sales reaching 1.321 million units, an increase of 6.4% year-on-year. However, this growth momentum did not last, and last year, SAIC Volkswagen's sales fell again, reaching only 1.215 million units, a year-on-year decline of about 8%.

This year, according to SAIC Motor's production and sales bulletin, SAIC Volkswagen's cumulative sales in the first eight months were 678,000 units, a year-on-year decrease of 4.8%. Among them, sales in August reached 85,000 units, a year-on-year decrease of 22.75%. Notably, from May to August, SAIC Volkswagen's monthly sales have declined year-on-year for four consecutive months.

It's no wonder that Tao Hailong described the current situation as "very stressful" in his interview and urged the entire team to "tread carefully" and "fight for every second." For SAIC Volkswagen, this is the most critical period, and it must quickly increase sales to support its sales network and brand positioning, or it may become the dish on the table rather than the one eating it.

2

Rumors of factory closure ●

Typically, when sales and profits decline, companies engage in cost-cutting measures. Previous reports have indicated that Volkswagen may lay off 30,000 employees in Germany to become more competitive in the shrinking European automotive market, with the R&D department being the hardest hit, potentially losing 4,000 to 6,000 jobs.

Later, media reports suggested that Volkswagen had also begun layoffs in the Chinese market, aiming to reduce global administrative expenses by 20% over three years. Now, these rumors have extended to SAIC Volkswagen's factories, with news that SAIC Volkswagen is planning to close its plant in Nanjing, Jiangsu next year.

The plant, which is primarily responsible for producing the Passat and various Skoda models, has an annual production capacity of 360,000 units. SAIC Volkswagen plans to relocate some workers from the Nanjing plant to its other plant in Yizheng, Jiangsu, which currently focuses on producing the Lavida sedan.

However, SAIC Volkswagen quickly clarified that all production activities at the Nanjing plant are operating normally, with sufficient production capacity for the entire Passat lineup, and normal production and sales. Based on market demand and product planning, SAIC Volkswagen plans to introduce many new products in the future, including new fuel and new energy vehicles. Consequently, production bases will also undergo corresponding planning.

While this clarification seems to debunk the rumors, it does not entirely dismiss the possibility of future adjustments based on actual circumstances. Notably, this is not the first time rumors of SAIC Volkswagen factory closures have surfaced. Last year, the plant in Yizheng, Jiangsu was also mentioned.

According to information at the time, SAIC Volkswagen's three vehicle assembly plants in Anting, Shanghai, were undergoing production line adjustments. The first plant ceased production in July 2022 and has since been permanently closed, with some production lines relocated to Yizheng, Jiangsu. The second plant has combined its two production shifts into one, and the third plant is likely to follow suit in the second half of 2023.

Even if these adjustments are part of an overall upgrade and transformation plan to rationalize the production layout of electric and fuel vehicles, the rumors of factory closures are difficult to ignore, raising concerns about SAIC Volkswagen's capacity utilization and profitability.

Last year, SAIC Volkswagen's designed production capacity reached 2.088 million units, but actual production was only 1.202 million units, resulting in a capacity utilization rate of just 58%, indicating that nearly 900,000 units of capacity were idle. In the first eight months of this year, capacity utilization was also low, making it a necessary but regrettable choice to close redundant production lines to reduce expenses.

3

How to regain its former glory? ●

SAIC Volkswagen is currently facing severe challenges, partly due to the domestic market environment. In August this year, Chinese brand passenger cars accounted for 63.4% of the market share, while German brands accounted for only 16.6% of retail sales. Under these circumstances, SAIC Volkswagen cannot remain unscathed.

On the other hand, SAIC Volkswagen also has its own shortcomings to address. Previously, poor performance in crash tests by the China Insurance Research Council (CIRI) for the Passat and Tiguan L reduced consumer trust and increased skepticism. In recent years, with the advent of the electric vehicle era, SAIC Volkswagen's limited presence in the new energy sector has also impacted sales to some extent.

Therefore, regardless of any adjustments to the Nanjing plant, SAIC Volkswagen's primary focus should return to its products and sales.

Tao Hailong, who has recently taken office, has his own perspective on this. He stated, "SAIC Volkswagen will never engage in short-sighted behavior or lose its composure." "Transformation is necessary for SAIC Volkswagen, but this process must adhere to a systematic and disciplined approach."

Specifically, this translates into an "addition" strategy in product development. On the one hand, SAIC Volkswagen plans to establish a dense product portfolio spanning the 80,000-320,000 yuan price range with various energy forms, offering at least one product for every 10,000 yuan increment. On the other hand, it aims to enhance the competitiveness of its products by building successful models into families, thereby driving brand growth.

Fu Qiang, Executive Vice President of Sales and Marketing at SAIC Volkswagen, also revealed that this year is a crucial year for the company's product offerings, with two of the three installments of the "Pro" trilogy already released. While expanding its product portfolio, SAIC Volkswagen has also optimized some products to meet the needs of more niche market segments, pursuing a strategy of concurrent development of fuel and electric vehicles, and upgrading its ID. series products.

It seems that SAIC Volkswagen is not resting on its laurels, but the effectiveness of these strategies remains to be seen over time. On a positive note, in August this year, SAIC Volkswagen delivered 14,000 new energy vehicles, a year-on-year increase of 23.3%, setting a new monthly delivery record for the year. Its continued efforts in the new energy sector are poised to become a growth driver for sales.

"The competition in the Chinese market is far from over, and it is difficult to say who will come out on top. The game is far from over, and the key to winning lies in the competitiveness of the enterprise itself," said Tao Hailong. In his view, joint ventures still have opportunities. The question remains whether SAIC Volkswagen can rise again under his leadership.

Author | Lili

Source | CarVisibility

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