Shanghai Volkswagen is often cited as one of the most successful joint ventures in China. With a current production capacity of 100,000 cars at its Shanghai site, it outstrips any other car manufacturer in the country, and is in the process of further expansion. The existing car plant and engine plant will soon be joined by a second car plant, which will. officially boost capacity to 150,000 vehicles.
Dr. Bernd Farny, technical executive director of the company, is keen that the company should not rest on its laurels, however. "Time is not standing still," he says. "For example, we are investing a lot of money in Changchun. My feeling is that Shanghai will have to hurry up a little bit, as Changchun may have a large capacity."
The Changchun site, a joint venture between Volkswagen and the First Automobile Works, is not vet producing its Jetta cars in huge numbers. At present, it mainly imports completely knocked down (CKD) cars for reassembly, and a new factory, whose first phase is expected to boost output to 150,000, is still under construction.
The Shanghai site began production in 1985 with the Santana, which had already been running in Germany for a few years. Volkswagen took with them the know-how and facilities and established a training programme for the joint venture's employees. Since production started, the company has laid heavy emphasis on keeping levels of local content nigh, with a rigorous system of checking quality from the local suppliers.
"When you don't have a highly sophisticated supplier base, you can import the parts or you can help the supplier," explains Farny. "We are helping our suppliers so that they can deliver parts to us according to our quality standards. We have a very stable production programme here.' Levels of local content bear witness to this, having risen from lust over 0 per cent in 1986 to 86 per cent last year (though in practice, the figure dropped to 75 per cent due to the supplier being unable to meet the demand).
We are now thinking of introducing some new features to make the car more attractive and we are also planning to introduce a new car at the end of next year,, says Farny.
Like the Santana, the new car will be a sedan, but the. design will be specially modified for the Chinese market. "The original Santana was designed for families in Germany, where the father sat in front and the little children sat behind. Here, you learn that the important person sits in the rear seat," explains Farny.
China's underdeveloped roads have also triggered design changes over the years. "A car designed for Europe's streets will not have a long lifetime here. For that reason, we are specially adapting our cars to the Chinese road conditions.
A European car horn would also have little chance of survival with a Chinese driver leaning on it. "We made tests with the German horn," says Farny. "After 4000km, the horn couldn't stand it. The horn we use in our Santana here has more than twenty times the standing time of the German horn…and that is still not enough!"
The Santana is not appealing to the Chinese family either at present. The main customers are companies, taxi companies and government officials. The number of private buyers nearly doubled last year, but the basis is so low, that figures are still negligible.
Although the price of a Santana at 167,000 RMB is less than half the price of many imported cars, the cache that the imported car affords the owner is worth every extra penny to the average Chinese buyer at present. "I get the feeling that people who want a car, aren't vying too much attention to the price. They get an allowance from their company, and they just spend the money.
"The imported car is still attractive to them. It is a question of image, of lifestyle and of how people feel here. If you look at Germany, there is a trend to have highly sophisticated cars, which don't appear to be highly sophisticated. You can now get a Golf, for example, with a six cylinder engine and all the equipment possible. It is very expensive, but it looks like a normal family car. In Germany, we are making a lot of money with this car. Here, it would not be possible. A car here has to appear expensive."
Farny lays great emphasis on understanding the Chinese mentality, not only in the company's sales approach, but also in the internal running of the company. "We have to train our workers on the production line that they are responsible for quality. If they see something going wrong, they should not let it go, hut should stop and repair it." The same training is required in the after sales service. The Chinese idea of what constitutes good service often differs from the company's, says Farny.
His advice to companies establishing joint ventures takes up the same theme. Volkswagen holds 50 per cent of the Shanghai joint venture, with Shanghai Automotive Industry Corporation (SAIC) holding 25 per cent, China National Automotive Corporation (CNIC) 15 per cent and Bank of China 10 per cent. It is vital, he says, to make sure that you and your partners understand each other fully.
"Sometimes in our company, we have misunderstandings because of our different backgrounds. There must be very clear rules on how to proceed. There must be very clear responsibilities. If you state these two points, you can avoid and solve problems." This is especially crucial in writing up the joint venture contract, "because what you say in the contract is law for a very long time."
Farny says he has even found problems with explaining to Volkswagen in Germany the levels of discussions needed with the company's partners. "They think you are Volkswagen. And I say, we are a joint venture."
Shanghai Volkswagen's profits would imply that many of its problems had been ironed out. But, once again Farny warns against complacency and feels that the increased competition that China's possible entry to GATT would bring, could be a good push for the company. "If you go now to our Chinese partners and say we have to reorganise, they don't really understand that you can have the same effect with less money.
"We also do not have any pressure to save money because we are making a profit." *