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Volkswagen Has Big Plans - If China Shifts From Park to Drive With BC-China-Slump

March 18, 1990

SHANGHAI, China (AP) _ Volkswagen’s joint venture autoworks in Shanghai produced nearly 16,000 cars last year - the equivalent of four days output for the headquarters factory in West Germany.

Still, Volkswagen has big plans for the Shanghai factory - if China will just release the brakes and put it in gear.

When Volkswagen AG signed a 50-50 joint venture contract with the Shanghai Tractor and Automobile Corp. in 1984, it seemed a perfect fit.

Volkswagen wanted a manufacturing base to win a share of the Chinese and Southeast Asian auto market. China, spending tens of millions of dollars annually to import Japanese cars, wanted to modernize its auto industry.

Shanghai Volkswagen started with a capacity of about 100 cars per day, or 30,000 a year, then doubled capacity last year. But the most China has ever let it produce in one year is the 15,687 cars that rolled off the line in 1989.

The problem is politics. While Chinese auto officials were approving Volkswagen’s expansion and devising plans for three more joint venture autoworks over the next decade, top Communist leaders decided cars were a luxury.

Last summer they banned practically all new car purchases, domestic and imported alike, by government units and state-owned companies. The slogan ″hard work and plain living″ was promoted to curb inflation blamed on ousted Communist Party leader Zhao Ziyang.

Thousands of car orders were scrapped. Stocks grew. Shanghai Volkswagen finally halted production for 39 days, when its distributor complained it had nowhere to put more cars. The French automaker Peugeot’s joint venture in Canton shut for two months.

″Auto industry careens toward a dead end,″ read a headline in the official China Daily at year’s end.

The crisis eased when the government intervened and bought the excess inventory - 7,440 cars from five Chinese or joint venture factories, at a total cost of $269 million. Wang Rongjun, Volkswagen’s managing director, said he believes most of the cars are still in government warehouses.

By early March, Beijing still had not told Shanghai Volkswagen its production quota for 1990 or responded to a request for a price increase to offset last year’s devaluation that makes imported parts more expensive. The top West German manager, Burkhard Welkener, said he expects the quota will be 17,000.

Wang said Beijing has quietly relaxed its ban on car purchases, to allow replacement of old cars. But purchases still must be approved by local authorities, a long and difficult process. Moreover, the government markup in taxes and other fees is 126 percent, discouraging many potential buyers.

Fees inclusive, the Shanghai plant’s manual transmission Santana - a model that once sold in the United States as the Quantum - goes for 179,700 yuan, or roughly $38,230. Some provinces add more fees so the price exceeds $42,550.

Welkener said per-car production costs could be cut 30 percent to 40 percent if the factory were allowed to produce at full capacity. As it is, the Shanghai Santana is too expensive to export competitively to Southeast Asia.

But Welkener, a tall, mild-mannered man, seems philosophical about the government controls.

″Of course it is a little bit frustrating to produce only 17,000,″ he said. ″But our company follows the idea of (Chinese officials) that there has to be a readjustment. We totally agree that everything has to be slower.″

He said the factory still plans to send young Chinese engineers to West Germany for technical training, and bring them back to design a new Santana for export.

″Santana for me is not just a car. Santana is a philosophy to bring China modern management,″ he said. He used one of the few Chinese phrases he knows: ″We must do it yibu, yi bude -- step by step.″

End adv for Sunday March 18

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