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Volkswagens Other Problem is Created in China

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Published on : Sep 28, 2015

For Volkswagen the emission scandal would be bad news at any time of the year. However, shareholders are experiencing the worst now, due to loss of all hope of runaway growth in China – which is the largest market for Volkswagen.

The good part of this for Volkswagen is, the allegation that Volkswagen played fraud on U.S. emission conducted on its diesel-powered cars may not spred to China. This is because the company has a very small market for diesel cars in China. And the two joint ventures of the company in China, both of which are state-run agencies, are likely to bear the costs should a hit affects the brand.

Contrary to this, what Volkswagen is facing hard to bear is slowdown in China. In the first half of 2015, the company recorded 3.9% fewer sales in China compared to the same period in the previous year, which is probably the first time sales have declined in a decade.

Volkswagen, which is the largest car seller in China may not be able to sustain the broader downturn. The car maker may not be able to help itself even with the launch of sport-utility-vehicles, which is the only car segment in China that is reliably growing.

According to data released by LMC Automotive, the market share of Volkswagen dropped by 18.1% between the months of January and August, which were recorded to be 18.9% in 2014 for the same time period.

For the car maker, the biggest challenge is profit. In the good years, the demand for cars in China was so high that the car maker would sell its ubiquitous Passat at a price 15% higher than the U.S. price, after tax adjustments. 

The Audi brand of Volkswagen Q7 SUV, held more than 50% premium in China as compared to the U.S, as calculated by a market analysis company in 2014