VW to open 10th factory in China

VOLKSWAGEN has announced that it will double its annual production capacity to three million vehicles within four years in China – the world’s (and VW’s) largest new-vehicle market – but for now continues to rule out the return of exports to Australia.

Announcing the expansion in the southern Chinese province of Guangdong, VW CEO Martin Winterkorn said China had become the Volkswagen Group’s largest and most important sales market.

“We intend to continue above-average growth side by side with our partners,” he said. “With our unprecedented investment program, we intend to double our capacities in China to three million vehicles per year by 2013-14.”

Prof. Winterkorn was joined by Volkswagen Group China president and CEO Winfried Vahland and representatives if its Chinese partner, FAW-Volkswagen, to sign contracts for the construction of the German auto giant’s 10th factory in China on June 9.

Volkswagen, the biggest car-maker in China for some time, already has five joint-venture plants with FAW at Changchun and Chengdu, but the Foshan plant near the metropolis of Guangzhou will be its first in southern China.

Construction of the complete production facility, which will comprise a press shop, body shop, paint shop and assembly unit on a 170-hectare site, will start in late 2010 and by mid-2013 the plant will have the capacity to produce 300,000 vehicles a year – about double the number of cars built in Australia last year.

Left: Volkswagen Polo Sedan

FAW-Volkswagen says the Foshan plant will employ about 4000 workers. The €520 million ($A743m) investment will be funded entirely from its own cash flow, as part of Volkswagen AG’s €6 billion ($A8.57b) investment in new products and the expansion of production capacities in China by 2012.

Volkswagen, which plans to introduce more than 20 new models in China by 2012 and its first Chinese-built electric car by 2014 (based on the domestic-market Lavida), says the Chinese market is a key part of its long-term growth strategy and plans to expand its market leadership there by “adapting capacities to growing demand from customers”.

Together with Shanghai Volkswagen, which was formed in 1985, Volkswagen will launch seven new or modified locally produced models this year – in addition to the 20 Volkswagen, Audi and Skoda models it already builds.

Between its FAW and Shanghai joint-ventures, Volkswagen produces everything from the Polo, Golf, Jetta, Passat and Touran, to the Skoda Fabia and Octavia and even the Audi Q5 SUV and long-wheelbase A4L and A6L sedans.

“In the first five months of this year, Volkswagen Group China sold about 778,000 vehicles, exceeding deliveries in the record year of 2009 by a further 48 per cent,” said Mr. Vahland. “The 10th plant in China will further reinforce the leading market position of the Volkswagen Group.”

Total passenger car sales in China, which last year surpassed North America as the world’s single biggest new-vehicle market, last month increased by 26 per cent to 1.04 million cars, while to May this year car sales are up 55 per cent to 5.68 million units.

Western car-makers in partnership with Chinese makers make up 75 per cent of China’s new-car market and the best known joint-venture is the Volkswagen Group’s arrangement with the FAW Group Corporation of China, formed in 1990.

FAW is the biggest automotive industrial conglomerate in China, with more than 35 assembly plants across the country, 11 subsidiaries controlled solely by FAW, 12 holding companies and 14 joint-ventures.

Volkswagen’s latest expansion move in China follows the announcement of plans last month by Daimler AG, the world’s second-largest luxury car-maker, to invest €3 billion ($A4.28b) in a new engine plant there.

Australia became the first export market for the world’s most populous nation in September 2004, when the Shanghai-made Polo Classic sedan, which became the first Chinese-built vehicle to be sold here.

The highly specified, manual-only model – which was overpriced at $23,990 – was unsuccessful but former Volkswagen Group Australia (VGA) managing director Jutta Dierks, who took over the local subsidiary in January 2005, hoped further VW models would come from China if the vehicles could be specified correctly and/or a free-trade agreement established.

Since then the first Chinese vehicle brand, Great Wall Motors, has also been released here and at least three others in Chery, Geely and Lifan have been promised in 2010, but so far this year just 2400 Chinese-made vehicles were sold in Australia.

Last month Volkswagen launched the fifth-generation Polo in Australia, with the three-door sourced from Spain and the five-door built in South Africa. A four-door sedan version of the Polo was also revealed last week in Moscow, developed specifically for the Russian market.

Before the global financial crisis in 2007, Ms Dierks said VGA was keen to add a sub-compact model positioned below the Polo in Australia if could source such a model from a low-cost base in Asia. At the time, it ruled out the pint-sized Fox because it was deemed too small – the same reason the forthcoming Up may not be sold here.

Either way, soaring vehicle demand in China and the lack of a free-trade agreement with Australia make it unlikely that Volkswagen will resume exports to Australia any time soon, as foreign brands concentrate on the unabated growth in the Chinese domestic market.

New VGA managing director Anke Koeckler told GoAuto at last week’s Golf R and GTD launch that VW would not import any vehicles from China in the foreseeable future, despite the doubling of production capacity there in the next few years.

She said that VGA had adequate sources of cars from its other factories, and was not planning a switch any time soon.

“The expansion of production in China is about meeting the needs of the Chinese market, which is growing rapidly,” she said.