VOLKSWAGEN EYEING ASEAN MARKET

A news analysis by Manik Mehta

FRANKFURT, Aug 25 (Bernama) -- Germany’s and Europe’s biggest carmaker,
Volkswagen (VW), has been eyeing the Asean market for some time.

It has set its sights on Southeast Asia but its past efforts were not successful
as it failed to establish a strategic partnership with Malaysian carmaker,
Proton.

After several failed rounds of negotiations with Proton, VW recently signed a
deal with the Malaysian company DRB-Hicom and is now making inroads into the
Asean region through another route –- Vietnam.

The “new China”, as Vietnam is sometimes referred to in German industry circles,
provides conditions that seem to have convinced the Wolfsburg based German
carmaker that it can get a strong foothold in the Asean market.

VW has for many years been closely studying the market conditions in the Asean
region whose 500 million consumers offer a large pool of buyers, eventhough they
would not be able to pay the high sale prices of VW cars that are popular in
Europe.

The car models conceived for the Asean market would, naturally, have to be
different and in the lower price category to make them attractive for the
buyers in terms of pricing.

What has apparently spurred VW into action in the Asean region is the dominating
presence of Japanese carmaker Toyota which enjoys 33 per cent market share
compared to VW’s meagre 0.2 or 0.3 per cent in Southeast Asia.

“The VW strategists are apparently trying to penetrate the Asean region by
offering low-cost models. This is also a reason why VW recently signed a
partnership agreement with DRB-Hicom which will complement its efforts to
penetrate the Asean region where Toyota has been dominant for decades,” Harold
Sewitz, a German management consultant with deep knowledge of the Asia-Pacific
automotive industry, told Bernama.

While the DRB-Hicom deal envisages production of VW models in Malaysia effective
2012, VW’s overall strategy for Asean is aimed at penetrating the region which
will invariably come at the expense of its rival Toyota which is closely
monitoring VW’s arrival.

Besides China and India, over which the industrial world is going gaga, Asean is
a promising market where demand for automobiles is expected to post strong
growth.

VW sees Vietnam as a production site that is attractive not only because of the
access it provides to the large Asean market but also because of other
attractive features such as low labour and production costs.

VW is probably going to produce its pick-up Amarok vehicle to compete against
rival Toyota in the Asean region.

VW currently manufactures this model in South America and some experts argue
that the Amarok could also be suited for the Asean market. According to
unconfirmed reports, VW is toying with a production volume of 200,000 units in
the long run.

VW’s appetite for further growth in the new Asian markets has been whetted after
a streak of impressive growth in China. But the VW strategists also realise that
it is vital to have a strong presence in the major markets of Asia, particularly
the Asean region.

After China, VW gradually turned its attention to India which has its own car
manufacturers. Watching the success of carmakers in India, VW quickly spurred
into action before the Indian market became “too crowded” with a multitude of
both Indian and foreign carmakers.

China’s economy is already overheated and will have to slow down in the coming
years, as many pundits are predicting. This will force many carmakers to look
for other greener pastures.

In the Asean region, Toyota continues to rule with a market share of 33 per cent
compared to VW’s meagre 0.2 per cent In the "core" Asean countries -–
Indonesia, Malaysia, Philippines, Singapore and Thailand –- some 1.8 million
cars are produced, a figure that will further rise in the future.

One of the driving factors behind VW’s attempt to establish a production site
within Asean is to circumvent the high import duties on foreign-made cars, a
hurdle which VW could not overcome if it were to ship cars from its China
production.

VW does carry out some partial assembly in Indonesia of the Touram model in
partnership with a local company.

Although a company spokesman said no plans have been finalised yet for the
production of Amarok, such a possibility cannot be ruled out.

VW is also positioning itself by making strategic acquisitions such as buying a
stake in the Japanese carmaker Suzuki which is setting up a plant in Thailand
for the production of small cars.

This can serve as a “stepping stone” for VW’s ambitious plan for the Asean
region, according to German analysts.

VW also has to keep in mind that average consumers in Asia, including in the
Asean region, have financial limitations.

Cars have to be “realistically priced” if they are to be sold in the Asean
market. The Amarok pick-up whose price is in the range of 26,000 Euros in
Europe, would be out of the financial bounds of the average Asean consumer.

VW lacked a low-cost production facility that would enable it to produce
vehicles for the booming emerging markets. The Vietnam facility might give it
the means and ability to produce one such model in the future.
-- BERNAMA




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