Golf Small

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Why was Volkswagen so successful in China while other companies like U.S. AMC Jeep Corporation failed?

Shanghai Volkswagen is a joint venture between the German Volkswagen AG and a consortium of Chinese partners. The 25-year agreement signed by the partners in the middle of 1980s provided for 50% Volkswagen AG equity in the venture. By 2001, this cooperation was the most successful automobile venture in CHina. Attempts by the U.S. AMC Jeep Corporation and other car makers failed. While other companies were attracted by the potential swhift, huge returns because of the large CHinese population of 1.2 billion people (certainly only a very small percentage would be customers), Volkswagen built the venture gradually over the years. By 2001, it had aachieved a market share of over 50% as a result of introducing "hot"models and assuring reliable service. But a great deal of effort was necessary to build up this market.

Here is a recent article that explains the Volkswagen strategy for selling its cars in Japan:

"With one eye on the coming D1 luxury car, Volkswagen Group Japan K.K. will spend a hefty [yen]1.2 billion, or $10 million at current exchange rates, over three months to sell the new Passat.

VW Japan expects to sell 1,000 Passats in the remainder of this year and 5,000 in 2002. Its launch marketing costs come to $1,666 a car.

``Volkswagen is serious about making a success of the new Passat,'' said VW Japan President Tsutomu Umeno.

The launch aims, ironically, to balance the success of the VW Golf in Japan. Last year, the Golf accounted for about half of VW Japan's sales of 58,481.

In Japan, ``Volkswagen is known for robust, practical cars, Golf, small cars, Golf, German-engineered cars and Golf,'' said Martin Biswurm, marketing general manager at VW Japan. ``Our brand image has been so influenced by Golf that some customers may find it difficult to associate Volkswagen with a larger car.''

With the upscale D1 due to arrive in Japan after 2002, VW has to push its brand image above that of the Golf.

``The current Passat is virtually nonexistent in the Japanese market,'' Biswurm said. Although the Passat has been sold in Japan since 1996, ``people don't know it exists,'' he said. Research has shown that Japanese consumers' spontaneous recall of the Passat name is 2 percent.

VW Japan expects to sell 3,500 old and new Passats in 2001.

The Passat's launch budget is slightly less than the launch budgets at rivals Mercedes-Benz and BMW in Japan, and similar to the amount Japanese carmakers spend to launch luxury cars in their home market, Biswurm said.

VW Japan did not have to seek extra money for the Passat's launch. Instead of spending its usual marketing funds on end-of-year incentives to meet sales goals, VW Japan saved that money for the Passat.

On Oct. 30, VW Japan began selling three versions of the Passat: a 2.3-liter V-5, starting from [yen]3.49 million ($29,100); a V-6; and a V-6 with the 4motion all-wheel-drive system. All come in sedan and wagon versions. Sales are expected to split 7-to-3 between wagons and sedans.

Next year, VW Japan will add a W-12 Passat to its lineup."

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