Caixin
Nov 14, 2016 04:36 PM
BUSINESS & TECH

Audi's Joint-Venture Partner in China Fumes Over New Pact With Rival

(Beijing) — A newly signed deal to produce Audi AG cars in Shanghai has infuriated FAW Group Corp., the current exclusive manufacturer of the German luxury cars in China, according to a source close to FAW.

SAIC Motor Corp., China's largest automaker by sales, and Audi parent Volkswagen AG signed an agreement last week to make and sell the luxury cars from their Shanghai joint venture that makes Volkswagen-brand cars, SAIC said in a filing to the Shanghai Stock Exchange on Monday.

Before the deal, all domestically manufactured Audis were built by a separate joint venture, FAW Volkswagen Automobile Co. Ltd., based in the northeast China's Jilin province. On learning of the new rival deal, executives at FAW were "furious," said a source at the company, speaking on condition of anonymity due to the sensitive situation.

Audi has become China's leading luxury car maker since entering the market in the late 1980s, outselling peers like BMW and Daimler AG's Mercedes-Benz. The Audi brand is also favored by government officials.

"FAW's contribution to Audi's success in China's luxury-car market as the No.1 luxury-car seller for such a long time cannot be overlooked," said the source, describing the outrage felt by FAW executives on learning of the new deal.

Despite its market-leading position, however, the German luxury-car maker is losing its advantage as Mercedes and BMW play catch-up and new entrants such as General Motors Co.'s Cadillac roar into the market. In the first three quarters of this year, Audi's sales in China increased by 6.2%, while Mercedes and BMW reported growth of 30% and 10.6% respectively.

China contributed about a third of Audi's global revenue last year. But the German brand also posted its first decline in China that year due to an economic slowdown and a series of corruption scandals at FAW.

China is the world's largest car market, fueled by demand from millions of newly minted middle class Chinese. A growing wealthy class has also turbocharged the nation's high-end car segment, with the top 10 luxury-car makers selling more than 1.8 million cars in China last year, according to industry site Gasgoo.com.

The fierce competition and a decline in sales have prompted Audi to look for new partners in the country to bolster its leading position in the luxury-car market, said a person close to Audi.

"Germans are proactive," said the source. "They would rather make mistakes than do nothing."

Contact reporter Chen Na (nachen@caixin.com); editor Doug Young (dougyoung@caixin.com)

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