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VW's newest brand arrives at a bad time for Chinese automakers
Yang Jian | 2019/3/1

SHANGHAI -- Volkswagen Group, after contemplating the move for years, is ready to launch an entry-level brand in China. While the timing of the Jetta brand¡¯s debut is perfect for VW, it couldn¡¯t be worse for Chinese carmakers. 

At the Detroit auto show in 2013, Martin Winterkorn, then VW CEO, disclosed the company was weighing a new brand for low-priced vehicles in emerging markets. The target market for the brand was later narrowed to China.

At the 2016 Beijing auto show, Jochem Heizmann, then VW¡¯s China CEO, confirmed to Automotive News China that VW would launch the entry-level brand in China. 

VW has been studious with preparations for Jetta, judging by what it disclosed this week at its Wolfsburg headquarters.

Jetta is the name of a volume model sold in China and the U.S. under the VW marque. VW executives also disclosed the first three products planned under Jetta -- a three-box sedan and two crossovers. 

The products will arrive in the third quarter and be distributed through a separate dealership network created under Jetta. VW plans to establish more than 200 Jetta stores by year end. 

VW needs a lower-priced, entry-level brand in China now more than before. 

After growing steadily for nearly three decades, the new-vehicle market contracted last year, with sales dipping 4.1 percent to 23.7 million. 

While the new-vehicle market is expected to remain stable this year, demand in small cities and rural areas remains strong. In many of these places, there is only about one vehicle for every five households, which is about half of the national average. 

Jetta is well positioned to reach these households with strong technology support from VW and competitive pricing.  

The Jetta lineup will use the full resources of VW Group to develop products. Vehicles will be built at the Chengdu plant where the German automaker has long been producing the Jetta model for VW brand with China FAW Group Corp. 

VW hasn¡¯t divulged pricing for Jetta¡¯s first three products. But they are widely expected to be priced slightly above the average new-vehicle price at Chinese brands, which is about 70,000 yuan ($10,500). 

For Chinese carmakers, the Jetta brand poses a grave threat to survival.

With weaker technology and brand recognition, Chinese brands have generally been hit harder than their global rivals by the market downturn that began in July. 

In 2018, their combined annual sales fell 8 percent and their share of the market dropped 1.8 percentage points to 42.1 percent.

The trend is accelerating. In January, their market share shrank to 41.1 percent. 

What is even more worrisome is that Jetta may create a herd effect and prompt other global auto giants to create similar entry-level brands. 

General Motors, the second-largest light-vehicle maker in China, following VW, has already succeeded in turning Baojun, an entry-level brand introduced 10 years ago, into a volume seller. 

While Baojun sales declined 16 percent in 2018, the brand still delivered some 840,000 vehicles last year. 

PSA Peugeot Citroen, Ford Motor Co., Hyundai Motor Co. and other global automakers are operating well below production capacity in China. 

One cannot rule out the possibility that they, too, may follow GM and VW to better use their capacity. 

If that happens, it will break the backs of most small and medium Chinese carmakers.  

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