China Fracture Alert: Volkswagen's First Half Sales Drop For First Time Since 2005

By Bloomberg

Volkswagen AG posted its first decline in Chinese deliveries in 10 years after six-month sales fell because of the slowing economy, as once-hot emerging markets become a drag on the world’s second-largest automaker.

VW’s deliveries in China, its largest market, dropped 3.9 percent to 1.74 million vehicles in the period, the company said in a statement. First-half sales in China last fell in 2005, when deliveries slumped 14 percent.

VW also struggled in Russia, where sales plunged 41 percent, while the German automaker’s Brazilian demand tumbled 30 percent. Globally, VW’s deliveries slipped 0.5 percent to 5.04 million cars and trucks.

“Developments in South America and Russia remain tense, as do conditions in China, where growth on the overall market has been shrinking steadily,” Christian Klingler, Volkswagen’s sales chief, said in the statement.

Auto sales have slowed this year in China after economic growth moderated, more cities capped the number of new cars, and a volatile stock market diverted funds from vehicle purchases. Demand has slowed for VW and other carmakers in China despite increasing discounts and financial assistance to distributors. VW’s namesake brand as well as the Audi luxury marque have both offered financial support to dealers in China.

While VW’s decline in China reflects the weaker market, the carmaker has also been slow to adapt to changing tastes, said Robin Zhu, an analyst at Sanford C. Bernstein & Co.

‘New Normal’

“VW has problems of its own,” said Zhu, who is based in Hong Kong. “The brand in particular is a very sedan-centric fleet in an environment where there is this big switch to sport utility vehicles.”

Volkswagen’s shares fell as much as 1.6 percent to 196.90 euros and were down 0.9 percent at 10:58 a.m. in Frankfurt. The stock has climbed 7.4 percent this year to value the company at 95 billion euros ($103 billion).

The VW brand felt the brunt of the Chinese market’s decline, with sales dropping 6.7 percent in the first half. Globally, the brand’s sales slipped 3.9 percent. The Audi, Skoda and Porsche units posted increases in China and worldwide in the period.

Because of slumping demand, Audi has abandoned a target to increase sales to 600,000 cars this year in China, two people familiar with the company’s plans said last week. The German automaker said in April that it is unlikely to outpace the industry this year.

“Faced with the ‘new normal’ market conditions, Volkswagen Group China plans to maintain our clear lead in the market,” Jochem Heizmann, head of VW’s China operations, said in a statement. “With China being a key market for the Volkswagen group, we aim for long-term qualitative growth.”

Source: Volkswagen China Sales Decline for First Time Since 2005

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