From：Internet Info Agency 2018-12-27 16:20:27
Since the contract-signing of the transfer of Audi 100’s technology between Audi and First Automobile Works (FAW) in 1988, Audi has been operating in China for 30 years. The word “Glorious” is a general assessment of this history. There are countless achievements, stories, and some little-known things that are silently affecting today's development. Since 1999, I have been in contact with FAW-Volkswagen Audi, Audi China and Audi AG. There have been both formal interviews and private view exchanges, and I have learned a lot about these less-known things. I think it is time to share them with the industry. I would like to thank Mr. Zhang Yuxing from the China Economic Net and Ms. Jiang Fan from The Economic Daily for their contributions to this article.
How did the first home-made Audi A6 be priced?
The first Audi A6 produced by FAW-Volkswagen, which is Audi's 5th generation C-Class with internal codename C5, was launched in 2000 and has achieved great commercial success. It originally planned to produce and sell 126,000 units in its 6-year product life cycle. However, 75,000 more units were sold finally, reached 201,700 units. And the price was stable in a certain period of time, leading excess-demand. This seemed to be a good thing for Audi dealers and manufacturers, but as a shareholder of FAW-Volkswagen, Audi was not happy.
The main reason is that in the A6 price negotiations started in 1996, FAW first lowered the expected product market price, and then discussed the essential costs and profits in the production and sales process, resulting the import price of CKD parts was compressed to the limit. A FAW-Volkswagen insider said: "The A6's CKD price is only slightly higher than other Volkswagen models. Fortunately, Audi is not too thoroughly knowledgeable about the Chinese market, especially the price of such a car in the Chinese market and the extent of its popularity in the future. At the time, the two sides talked for a long time. We were desperately reducing the price, while they were also desperately calculating their prices. In the end, we could say that they reluctantly agree with such a project."
As a result, the A6's price was higher than the expected price four years ago, and it sold well. As a major shareholder of FAW-Volkswagen, which owns 60% of the shares, FAW has made enough money in production and sales, and dealers have followed suit to make money. However, the price of imported CKD that Audi controls itself remains unchanged, and there is no profit at all. With the increase in localization rate, CKD is still decreasing. When FAW-Volkswagen Audi can only get 10% of the dividends according to the stock ratio, this is asymmetry with its contribution, which ultimately leads to psychological imbalance.
"Since 2002, this problem has become more and more prominent and intensified," said an insider at FAW-Volkswagen. He believes that, when Volkswagen products suffered losses during the period afterward, FAW-Volkswagen's profits depended on Audi products. He added, "But Audi can only receive 10% of the dividend. It definitely feels unbalanced."
In Changchun, Audi was tricked by FAW, and most of the profits of A6 were taken away by dealers and FAW. In Beijing, there is an opposite case. BAIC and Mercedes-Benz reversed the order of the first domestic Mercedes-Benz price negotiations. They first talked about a higher import CKD price, then added production and sales costs, and finally pushed the expected market price to a peak, leading to the domestic Mercedes-Benz E. The level loss is serious. But the Mercedes-Benz who controls CKD has earned a lot. It is no wonder that BAIC poached several FAW-Volkswagen elites to compete against Mercedes-Benz.
The reason why the Audi A4 competing BMW with a high price
FAW made a big profit on the A6, which made Audi mentally unbalanced. It must do something.
April 8, 2003, the Audi A4, which was the second model of Audi's home-made production, was priced high at 379,000 yuan, which is about 40,000 yuan more than the entry-level model of its sibling Audi A6. Some believe that such a high price is to force the upcoming home-made BMW 3 Series and 5 Series to raise prices, thereby restraining the growth of their sales. And BMW did what they expect. Therefore, this incident has become a classic case of commercial blocking.
However, the real reason behind the incident is completely another matter. It is Chinese partner’s means of compensation for Audi's mental imbalance.
In 2002, FAW and Audi began business negotiations on the introduction of the Audi A4. The background is the issue of the previous A6. Some people inside Audi began to discuss with the Volkswagen Group, intending to take the Audi A4 to SAIC Volkswagen for production, and SAIC Volkswagen was willing to pay a higher price for A4 technology transfer and the CKD import. Then FAW was under tremendous pressure. Finally, the then general manager of FAW Group, ZHU Yanfeng and Audi's Schmidt reached an agreement based on their years of mutual understanding, trust and understanding. That is: FAW can accept higher SKD prices as a kind of compensation on the A6 issue, and, in this way, a way to assist Schmidt to convince others.
But how price of SKD is acceptable? At the beginning of the negotiations, Audi quoted a high price of SKD. But FAW found that it would lose money when it added the cost of SKD to customs, assembly and sales. After several negotiations, FAW delegations had no choice but to accept the Audi A4's SKD price, and the market price was set between 379,000 yuan and 559,000 yuan. However, sales in 2003 can only be around 8,000 units." A senior person from FAW said that the 8,000 high-priced A4 is a big gift to Audi. For FAW-Volkswagen, this price is only a capital preservation, but it has consolidated long-term interests.
According to the later situation, FAW's concession on the issue of Audi A4 is only a special case. And the two sides have been more rational and the interests have become more balanced after the introduction of the next Audi A4.
In the market respect, FAW’s expectation of the sales of the high-priced A4 was accurately. They planned to sell 8,000 vehicles, but actually sold 9441 vehicles. In consumers' respect, this A4 is imported assembly car with 100% original car parts, and the configuration is very luxurious, while the price is 30% lower than the imported A4. It is worthwhile. However, the "blocking BMW" effect produced by the high-priced A4 is unexpected.
Six months after the launch of Audi A4, the price of the home-made BMW 3 Series was announced on October 16, 2003, and it was higher than the A4, as expected by the media. For this high price, BMW Brilliance privately told reporters: High price Audi A4 is good, we can set higher and make more money.
However, after the two main models of the 3 Series and the 5 Series were made-in-China, BMW’s sales in China declined in 2004, down 16% over the previous year. Although the entire Chinese auto market was sluggish this year, Audi's performance was quite stable, with sales increasing by 0.8% over the previous year. As a result, the high-priced Audi A4 is regarded as a successful marketing case.
Four years later, a related person of FAW-Volkswagen recalled that they launched high-priced A4 was only because of the high price of SKD, they had no choice but to do it. As for BMW, according to BMW's practice, they did not dare to set its 3 series cheaper than the Audi A4. Of course, the increased 3 series price led an increase of the 5 series price. But they cannot challenge the Audi A6. He believed that this is just a coincidence. To some extent, BMW has inadvertently become a victim of the game between two partners within the FAW-Volkswagen.
Perhaps this coincidence is just a prelude to the competition between Audi and BMW in the Chinese market. 2005 became an important watershed for both prices and markets. October 7, 2004, FAW-Volkswagen Audi announced that from October 1st, its domestically-produced Audi products began to reduce price in various ways, with the highest cumulative price reduction of 65,000 yuan. January 13, 2005, BMW, who claimed that "BMW is not going to cut prices all over the world", also announced that the price of all home-made BMW models will be reduced by RMB 50,000-100,000.
How did the badge of "一汽奥迪 (English version: FAW Audi)" come from?
How to reflect the existence of the Chinese partner in the joint-produced foreign brand cars? This has been a sensitive topic in the history of China's auto industry's opening to the outside world for nearly 30 years. These problems are directly reflected in the name badge of a car, reflecting the conflicts and compromise of the parties involved in the joint venture. The most special of these is “东风悦达起亚•千里马( English version: Dongfeng Yueda Kia • Maxima)”, which contains the names of three companies and one model. This nomenclature clearly violates the simple and clear principles of brand promotion, but it is a helpless move after the stakeholders compromise.
According to the “Measures for the Administration of External Badges for Automobile Products " formulated by the National Development and Reform Commission, which was implemented in February 2006, cars sold in the Chinese market must be marked with the name of the automobile manufacturer, the trademark of the automobile, and the name of the model. The name of the automobile manufacturing enterprise must be marked with Chinese characters.
International brands want their own car name badge to be globally unified, and it is best not to have marks of origin, especially for luxury brands. However, according to the new regulations, home-made Audi must add Chinese name badge. However, the key is how to name it. "一汽大众 (FAW-Volkswagen)" has no Audi. The "一汽大众奥迪 (FAW-Volkswagen Audi)" is the complete version, but too many words are unaesthetic. Moreover, it contains three brands and three layers of meaning, which is easy to confuse consumers. As we know, luxury brands emphasize the brand's "purity" and its market effect. After repeated discussions, FAW and Audi proposed to use "一汽奥迪 (FAW Audi)".
However, the competent authorities at the time did not agree with this nomenclature. They believed that "FAW Audi" was neither a company name nor a product name, which did not meet the requirements of the regulation. FAW explained that FAW-Volkswagen is a subsidiary of FAW and a joint venture. FAW and Volkswagen are peer-to-peer. Without “Audi”, it will cause confusion in the brand. If you use "FAW-Volkswagen Audi", there are two non-Chinese brands, and "FAW Audi" can be understood as FAW's Audi, highlighting the status of FAW, and is also conducive to the development of China's auto industry.
It now appears that "FAW Audi" is a win-win solution and has become a benchmark. This method has been used by many international brands, such as "长安沃尔沃 (Changan Volvo)" and "北京奔驰 (Beijing Mercedes-Benz)". If named according to the regulations, the former must use the long name of "长安福特马自达沃尔沃 (Changan Ford Mazda Volvo)", and the latter one should be "北京戴姆勒-奔驰-克莱斯勒 (Beijing Daimler-Benz-Chrysler)".
A tail badge name reflects the conflicts and compromises between the different interests of the parties involved in the joint venture and related regulations, reflecting Chinese characteristics.
