Audi Looks For Road Out Of China Ditch
A pair of articles in today’s English-language China Daily nicely illustrates the recent woes being felt at a number of major foreign multinationals in China, as they face an unusual wave of government hostility that may be partly due to their strong market position. German carmaker Volkswagen (Frankfurt: VOWG) is the central player in the pair of articles, as it tries to recover from a recent wave of negative publicity for its Audi brand. The saga follows years of stellar growth that has made Audi cars a must-have product for Chinese government officials and many of the nation’s newly wealthy individuals.
It’s hard to say if the recent attacks on Audi were orchestrated under a centralized plan to lower the company’s reputation in the public’s opinion. I personally doubt there was any such coordinated conspiracy. Instead, the negative publicity ride, which began last year with a ban on government purchases of Audi cars, appears to be a classic example of Beijing taking an initiative, and then other government agencies and state-owned media jumping in to show their support. That has left Volkswagen to respond with its own public relations campaign that looks rather weak.
The first of the pair of articles is clearly part of the recent government campaign, headlined “Shine Dims For Once Golden Audi”. (English article) The article retraces the trail that led to the brand’s current tenuous position, beginning with last year’s ban on government purchases of Audi cars as part of a central austerity drive. Audi was one of the first foreign luxury car makers to produce its vehicles in China, and its early entry helped it to rise over the years to make it name nearly synonymous with high-end cars. It sold 269,000 vehicles in the first half of this year, giving it a third of China’s luxury car market.
But the government ban last year was just the start of Audi’s headaches, which got far bigger this year when its joint venture with FAW became the focus of an antitrust investigation by China’s powerful state planner, the National Development and Reform Commission. That probe was just one of a larger group of investigations that targeted nearly every foreign luxury car maker in China, accusing them all of predatory pricing for after-sales parts and services.
The investigation of Audi recently wrapped up with a record 249 million yuan ($41 million) fine. The China Daily article focuses on the huge damage to Audi’s reputation as a result of the probe, in what looks like a typical case of state-run media helping to justify the actions of government agencies.
So it’s a big ironic that the same edition of the China Daily, on the next page of its business section, contains another far more upbeat article centered on another engine-making joint venture between FAW and Volkswagen. Headlined “Double Celebration For VW”, this second article touts the success of the venture, Volkswagen FAW Engine, which produced its 2 millionth engine as it inaugurated an integrated test and engineering center. (English article)
As a regular reader of China Daily, I can say with almost 100 percent certainty that this second report is a “sponsored article”, sometimes called advertorial, commissioned by VW in response to all the negative publicity around Audi. But Audi’s PR machine is no match for the far bigger fire power from China’s massive government-media complex, and the company’s reputation will undoubtedly suffer some significant damage as a result of all the recent negative publicity. Other foreign companies being probed for antitrust violations are likely to suffer a similar fate, providing an important reminder for other multinationals of one of the very real and major unique risks of doing business in the market.
Bottom line: Audi’s reputation in China is likely to suffer significant damage as the result of a recent government campaign against it, and its feeble attempts to fight back are unlikely to have much effect.
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