The economic decline in Asia is being felt in every sector, particularly the automobile industry. The latest numbers from the China Association of Automobile Manufacturers highlight the changing financial situation.
Over the last five months automobile sales have continuously declined sinking to 1,664,500 units in August. Year-over-year sales are down by 3%, but some automakers have felt the decline more than others.
The slow down has been hard on many automakers that invested heavily in Asia over the last decade when the market was expanding rapidly. Not long ago Volkswagen showed strong sales numbers in countries like China where it held the largest market share. There VW accounted for an impressive 12% of new car sales. The company entered into a number of joint ventures and opened new dealerships in an effort to capitalize the growing market. Now the company is dealing with sales figures that have been up to 13% lower than in previous months.
However, the flailing Asian economy isn’t the only factor in auto sales slowing down. The decline in sales can also be partially attributed to drivers choosing to keep their current vehicle rather than buying a new one. This is a result from the contributing factors of an economic decline and consumer sentiment. Savings-conscious consumers of today are more inclined than ever to take auto part repairs into their own hands. Economic tightening means people will do what they can on their own to save money where possible, especially when it comes to potentially pricey auto repairs. In addition, it is now easier than ever for car owners to find affordable parts online for a wide-variety of vehicles – like the many offered from Volkswagen – ranging any year and model. For example, you can quickly find the right parts online for any 2006 VW model, engine size and other vehicle specs with easy-to-use tools, such as those offered by eEuroparts.com to explore their vast catalog of 2006 VW parts.
One key indicator that more people are repairing and enhancing their vehicles came this year during the Taipei International Auto Parts & Accessories Show. The 2015 show was larger than previous years and drew in more exhibitors from around the world.
Another problem that automakers face in Asia is an over-abundance of inventory. It is a classic issue of supply versus demand with the supply of new cars outweighing the number of drivers that are looking to buy.
The Future of Volkswagen in Asia
Volkswagen is a company known for their innovation and resilience, so it is no surprise that the automaker is handling the recent decline with a steady hand. However, with the recent VW controversy regarding falsified emissions testing in VW diesel-powered automobiles, the company faces a more challenging road ahead both domestically and abroad. In addition to battling the economic downturn, Volkswagen will also need to weather the financial sanctions brought down by the EPA and other international government agencies, as well as make obvious and genuine efforts to repair consumer trust and sentiment. It is still unknown if the entire economy of aftermarket VW parts and service centers will be effected, but if so the waves of their actions may be felt in a lot more places than their own internal operations. While they may have slowed down current production, VW still plans to move forward with expanding their operations in China to 5 million vehicles a year by 2019.
The now former CEO of Volkswagen AG, Dr. Martin Winterkorn, had a positive outlook at CES Asia 2015 back in May. He noted that VW would be putting a significant amount of focus on merging computer technology with automotive technology to make mobility more intelligent. The current economic situation is forcing automakers like Volkswagen to come up with innovative solutions that appeal specifically to the Asian market. Investing in intelligent features is definitely a viable strategy in Asia where consumers are quick to adopt computer technology.
Volkswagen also plans to manufacture several budget-friendly cars for their Chinese market in 2018. The lineup will include a sedan, hatchback and SUV. To help keep the cost around $9,000-$12,500 VW will manufacture the cars in China. This too is a strategic move that is based on the fact that most Chinese drivers pay cash for their vehicle rather than relying on a loan. In the first half of 2015 only 22.6% of buyers in China choose to take advantage of lending options.
The demand for new cars may be slowing down, but that doesn’t negate the fact that China still has the largest automobile market in the world. Volkswagen was quick to capitalize on the rise of the industry a decade ago, and they appear to be poised to use their strong market positioning to weather the current economic storm.
Written by Jane Brown
