“Volkswagenrepublik”

Henry Ford, a pioneer on automobile industry, started with the first moving assembly line in 1913 to produce cars in such a way that a normal middle class citizen was able to afford a car. He revolutionized the process between ordering a car and receiving the finished product. Since the first mass production of the Ford Model A many things have changed in the automobile world. 1 On the other hand companies of today still have to make profit and produce as efficient as possible to meet the customer needs. In my opinion Western Automakers should take the next step and reach over to the Asian countries with their upcoming markets.

The Ford company is the most important industrial company in the history of the United States.

The overall car industry should make a 160 degrees turn a focus mainly on their Asian markets. The US and European markets have stagnated since the big recession and in the US they have even decreased. The questions especially European car makers have to ask themselves is: “How can we produce the same quality cars, sell them cheaper but still make enough profit whilst entering the Asian market?”.

jetta-62

Growing Middle Class

China is a big market that has huge potential for European car makers. “Increased urbanization will have a profound impact on mobility demands”2. The country has a GDP that increase on a yearly basis with a average growth percentage of 9.175 % in the last 4 years. Of course, one may argue the significance of the numbers presented by China. Many argue that the economic situations that are coming from China are heavily influenced by government policies trying to create a better situation. Next to this, China’s car industry has some weaknesses it still has to deal with. Firstly, government restrictions set up in the 1960 made manufacturing installations scattered around the country. Because of the Cold War major manufacturing installations where scattered around rural areas. This is a major drawback when it comes to supplying the industry in an efficient manner. Secondly, the whole car market still depends heavily on the U.S. market for a disproportionate share of markets.

Considering these facts, China still remains one of the key players when it comes to economic growth and should not be seen as short term market. The Volkswagen China division increased its equity valuation to 3.5 billion euro in the first three quarters of 2013. Considering this the total profits ended up to be 8.8 billion euro’s. An impressive 40 % of the whole equity valuation came thus from China. Considering, that the European market is under pressure, lagging behind when it comes to car selling numbers. Other major car makers are trying following the line of success Volkswagen is pursuing. Although they cannot compete with the success VW has in China they are gaining. Careful long term statements are made by Wang Arthur et al, and according to Spiegel.de. Spiegel, a German critical paper, states that VW, BMW and Mercedes will enjoy rising sales until 2020.3 Looking at the future perspectives Mercedes will sell approximately 600.000 vehicles in China, compared with their worldwide sales of 2.6 million cars. BMW will even have a bigger growth perspective (China 650.000, worldwide sales, 2.8 million). In comparison the Volkswagen Group will have a far greater increase in the next 6 years. With selling’s reaching 12 million vehicles worldwide, over 4 million alone in China. Spiegel even talks about the synonym “Volkswagenrepublik”. It must be stated that the vast growth of Volkswagen is also due to the fact that Audi is integrated in these numbers.

GRAFIK mm 12/2013 s.56 Auto China / Volkswagenrepublik

Chinese vs. World Profit Growth

 

New car sales in China are forecast to contribute 35 % of the world’s car-market growth between 2011 and 2020”. In comparison, North-America (14%), Europe (10%) and the ROW countries (42%) shows less significant growth rates.

Concluding, China has a huge growth potential. This is also the case for the global automotive industry. The effect of this growth will be that foreign car makers, European car makers in particular, need to invest into China as soon as possible. In this fast growing economy missing out could be catastrophic. Lagging car sales in Europe make it even more important to look over to Asia where new markets are evolving.

 

Sources:

1. http://www.forbes.com/companies/ford-motor/

2. Wang, Arthur., Liao, Wenkan., Hein, Arnt-Philipp. „Bigger, better, broader: A perspective on China’s auto market in 2020”, McKinsey&Company.

3. http://www.manager-magazin.de/fotostrecke/autoindustrie-in-china-mit-vollgas-ins-risiko-fotostrecke-105926-3.html

4. http://econ243.academic.wlu.edu/2013/12/06/chinas-auto-industry-from-a-useu-perspective/

5. http://www.zeit.de/mobilitaet/2013-08/china-automarkt-volkswagen

6. http://www.gosee.de/news/show/id/9142

7. http://www.carscoops.com/2013/06/china-threatens-eu-with-higher-import.html

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