Blog: Dave LeggettGoldman Sachs on China, VW margins

Dave Leggett | 6 November 2003

I gather some research just released by investment banker Goldman Sachs adds further weight to the view that the dangers of overcapacity and poor profitability in China need to be taken seriously. Goldmans says that profitability in China may be slipping fast, and could hurt Volkswagen's overall performance, which relies heavily on China. Competition is said to be quickly eroding margins. "We have long feared that the abnormally high margins in China would fall once competition increased," the Goldmans report said, adding that, "The high level of profitability enjoyed so far in China has been driven by high tarriff-protected prices, not low costs".

Does Volkswagen realise this? There's one view that it is acutely aware of it and that's why it is very vocal on warning of the dangers of overinvesting in China. VW wants to protect its market leadership position and its under-pressure margins as much as possible. But is Volkswagen following its own advice and keeping its investment in China down? Of course not. The cautionary message is for others.


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