Trust Issues
FAISAL SHAH | 24 Feb 2017 00:30
In 2016, the Volkswagen Group sold more cars than any other car conglomerate in the world. Estimates report over 10.3 mil of Audis, Seats, Skodas, Lamborghinis and Volkswagens found new owners last year, which is incredible considering that the scandal of ‘diesel-gate’ occurred in late 2015. Clearly the world loves their Volkswagens enough to not worry about any potential emissions scandal but that same sentiment isn’t shared in some countries.

Malaysia is one of those exceptions. If one wanted to perform an MBA case study on how not to launch a brand and sell cars in Malaysia, Volkswagen’s colourful history with the country would be a good story to look at because there are more twists and turns than a Dan Brown novel.

It all started of course way back in 2004 when Volkswagen and Proton inked a long-term strategic partnership agreement. The Germans wanted a route into the booming Asean car market while the Malaysians had a brand new high-tech factory in Tanjung Malim that was underutilised. It seemed like a match made in heaven with many car fans dreaming of driving rebadged Volkswagens at prices that would have made a Honda City appear pricey.

Sadly, that never happened. Proton dilly dallied, brought up the national pride issue and by 2006 the cooperation was off only to be restarted with the aim of Volkswagen eventually taking a controlling stake in Proton. That deal got cancelled too in November 2007 but by now the largest car company in the world was already committed to selling and building cars in Malaysia.

They made a big splash when they started business. Money and lots of it was spent on launching cars, organising media events and advertising across multiple channels. They even organised their own motor shows called Das Auto to showcase current and future products and the word within the industry was that Volkswagen Malaysia was spending as much on marketing as every other car brand combined.

Predictably, sales took off and doubled every year from 2009-2012. Expensive dealerships on huge lots sprouted up in major Malaysian cities and for a time it looked like the mass market German brand would soon be challenging the likes of Nissan, Honda and Toyota for the best non-national car brand title. It was a logical assumption because Volkswagen had more money to spend, had better cars than the competition and they even had a better brand image.

Then it all came down with a crash. Issues with the DSG gearbox, Volkswagen’s heavily promoted dual clutch gearbox, started cropping up and owners who had issues were given the run around by a service network that couldn’t cope with the high volume of problematic cars. Communications with customers was also poor with no recall issued despite news of the company being forced to do so in markets like China.

To compound the issue, dealers in Malaysia who had over extended themselves by ordering too many cars started boldly advertising huge discounts in an effort to get their stocks sold. There was no price control from Volkswagen, which resulted in poor residual values and anger amongst customers who had paid full price for their cars. Add to that the fears about DSG and stories of poor aftersales service and it wasn’t uncommon for even an excellent car like the Mk6 Volkswagen Golf to lose half of its value in less than three years.

A change in plans

From 2013-16, sales of Volkswagen cars declined by over 50% with the 6,048 cars sold last year representing the lowest volume since 2010. That sort of performance won’t endear you to shareholders so Volkswagen decided to stop distributing cars by themselves in Malaysia and handed the reins over to Porsche Holdings Salzburg (PHS) who formed Volkswagen Passenger Cars Malaysia (VPCM).

PHS is the largest car dealership group in Europe and has a long history with the brand. They started doing business here at the beginning of September and to ensure they made a clean start, Volkswagen cleared the decks earlier in the year by holding a massive sell-off for their old stock with prices slashed across the board. This was both good and bad because while it meant VPCM didn’t have any old cars to sell, it reinforced the image that buyers just had to be patient before Volkswagen slashed prices to sell cars.

Still, VPCM showed their intent by launching cars in the last quarter of the year. The Vento and Jetta featured just minor updates but the all-new Passat was an important model for them as it promised luxury car features and quality at prices not too far ahead of Japanese D-segment rivals. Unfortunately, getting people into showrooms has been tough.

Malaysia’s economic outlook for this year has been relatively poor and on the back of a car market that shrank by 13%, potential buyers are naturally cautious about spending their money. Even when they do spend, it’s usually on brands that they perceive to sell quality cars that will retain their value. Volkswagen is a brand teetering on the edge when it comes to joining that select group.

VPCM is aware of these issues and for 2017 they have formulated a plan to rebuild the confidence of current customers while attracting new ones to the brand. Sustainable growth is the target for this and the next few years so they’re not interested in doubling their sales volume in the short term.

To build some brand interest, two new cars will be launched (new Tiguan and Beetle) to bolster the current range of key models comprising the Polo, Vento, Jetta and Passat. Each car now comes with a five-year manufacturer backed warranty, which replaces the old three plus two deal (with the last two years covered by an insurance scheme).
Four new 3S dealerships will also be opened in areas outside of the central region while numerous PR initiatives with car clubs and even movie tie-ups will ensure Volkswagen remains visible outside of the usual channels.

Addressing the needs of unhappy owners is still an issue of course, so PHS will offer a goodwill programme to provide an additional two-year warranty for DSG transmissions on VW cars produced before December 2013 and with a mileage of up to 200,000 km. These additional warranties will come into effect after the original warranties have expired and they will also extend the goodwill offer to certain components of cars using the problematic 1.4-litre twin charger engine though this will be on a case by case basis.

The issue of parts availability will be remedied by implementing a parts urgent order system with the promise of next-day delivery if an order gets in before 11 am (an extra day is required if the order is made by 2 pm). The parts currently come from Singapore but the main parts hub will be moving to Johor in 2018, which should further reduce waiting times. All replacement parts also come with a two year warranty too, though this has apparently always been the case with Volkswagen.

Finally, to ensure that service standards in all dealerships are met and maintained, onsite coaching will be provided by foreign Volkswagen experts stationed in Malaysia to assist the locals in both technical matters as well as processes. There is also a Volkswagen Academy in Shah Alam that is due to open in Q2. Owned by VPCM, the training facility will house technical and sales training and can accommodate up to 150 people a day, so having enough trained sales and servicing staff should no longer be a problem.

Even if all their plans are executed without a hitch though, the immediate future for the company looks like it’s filled with challenges. In an age when social media means the slightest slip-up can be shared with millions instantly, they have to run their business perfectly to win back buyer confidence. They will also have to wean themselves off the previous price slashing regime that decimated used car values and VPCM have promised that such tactics are now firmly in the past.

Will they succeed? Only time will tell, but the signs are there that Volkswagen may finally be ready to build a profitable and sustainable business in Malaysia. 

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