Blog: Dave LeggettChina issues for Volkswagen

Dave Leggett | 28 March 2006

Being first to a market is often a good thing in terms of the opportunities bestowed. You have a monopolistic starting point, which should mean high margins for quite some time. But there’s a danger of complacency. If there’s money to be made, rivals eventually emerge – some of them may actually be agile and able to learn from the pioneer’s mistakes. That sums up Volkswagen’s experience in China

We’ve published an article today written by emerging markets specialist Mark Bursa that makes some interesting points on the mistakes VW has made and how it can learn from them.

Polo bombed in China because it was too expensive, not because it was the wrong product (a little bit worrying that Bernd Pischetsrieder has failed to grasp that). For too long, Volkswagen in China has relied on the mid-sized saloons produced by its Shanghai Volkswagen JV. These fitted the bill in the days when ‘institutional’ customers (comprising the state sector, including state enterprises) were in the majority, along with taxi drivers. But the market has shifted and a new class of urban middle class is emerging, desiring cheap, small cars.

The success of cheap indigenous models like the Chery QQ (you know, the Daewoo Matiz rip off that sells for two thirds the price of the Chevrolet Spark) illustrates how the market is developing. As Mr Bursa notes, maybe Volkswagen actually has an opportunity in China with its low-cost Fox model, which is currently made in Brazil.

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