In the early 1980s, Volkswagen chair Carl Hahn dispatched his engineers to start manufacturing VW’s boxy Santana sedans in Shanghai. Defending the decision, the boss told his top lieutenants in Wolfsburg that Volkswagen could achieve great things in China “if we could tap into its huge potential, surpassing those we made in other countries”.
Hahn, who died earlier this year, was right on two fronts. The rise of China’s middle class created the world’s biggest auto market. And the German carmaker — one of the first foreign groups to show faith in Deng Xiaoping’s new China — for decades enjoyed the billions in annual profits that came with being the country’s top-selling brand. His prescience, however, might not have extended to what would happen four decades later when Chinese companies started to make better, more affordable cars than their foreign rivals.
For most foreign auto groups, the good days in China are now over. The likes of VW, Ford and Toyota have been caught out in China by two fundamental transitions. First, the pace at which consumers will abandon the internal combustion engine. And second, the rise of China’s homegrown electric vehicle groups.