Volks populi: The return of Volkswagen

It took three long years of negotiations, but finally Volkswagen (VW) is coming back to the Philippines.  Rumors of the imminent return of Europe’s biggest and the world’s second largest automobile manufacturer in terms of sales volume were already swirling around town before August 2012 when John Philip (JP) S. Orbeta, managing director of Ayala Corp., jetted back to Manila from Germany with the signed VW contract in his briefcase.

 

At a lunch with selected motoring media last Thursday,  JP Orbeta said that Ayala Automotive Holdings Corp. (AAHC) was obliged to report the signing of the contract with Volkswagen AG to the Securities and Exchange Commission since AAHC is a publicly listed company.  The business press immediately picked it up, generating wider speculation as to how and why Ayala won the coveted contract over a prominent rival, which VW models would be sold here, at what retail prices and from where the cars would be sourced.

 

Volkswagen’s history in the Philippines may give a clue as to why Ayala was chosen.  In July 1958, DMG Inc., as the exclusive assembler and distributor of VW in the country, started selling the Kombi minivan, followed by the Beetle.  By the 1970s, VW was the leading automotive brand.  But in 1981, DMG ceased operations after it had lost substantial market share to lower-priced Japanese cars.

 

In June 1996, the Proton Pilipinas assembly plant was inaugurated in Alaminos, Pangasinan, to roll out the VW Polo and the Caravelle, with the assembly of Audi cars also planned for the future.  But for some reason, production at the Proton assembly plant in Pangasinan stalled and eventually shut down. Buyers of the Polo and Caravelle ended up with no authorized service center and parts supplier for their VW cars.

 

CAUTIOUS. Losing out twice in the Philippines naturally made VW AG extra cautious in choosing a company to import and distribute its products.  Having no manufacturing facility in Southeast Asia and eager to achieve its goal to become the world’s No. 1 car manufacturer by 2018, VW AG did a lot of research on the Philippine auto industry and market.  “Ayala started talking to Volkswagen three years ago,” Orbeta says.  “There were other competitors.”

 

True, there were other competitors, but none were as impressive as Ayala, one of the oldest, biggest and most respected companies in the Philippines with a diversified portfolio of businesses that are leading players in their respective sectors.  Listed Ayala entities’ combined market capitalization of $34.3 billion accounts for 20 percent of the Philippine Stock Exchange index, earned total revenue of $2.4 billion in 2012 and total group net income of over $1 billion in 2012.

 

Moreover, Ayala has a successful track record in the auto industry, proving that it ventures into business projects for the long haul.  AAHC owns 13 percent of Honda Cars Philippines Inc., 15 percent of Isuzu Philippines and 100 percent of 10 Honda Cars dealership outlets and eight Isuzu outlets. AAHC proposed to fully invest in and thereby own 100 percent of  VW Philippines and its dealerships, starting with three iconic outlets in Bonifacio Global City, Quezon City and Cebu. A service center in Mandaluyong City will open in December.  Building the first three dealerships alone will cost some P700 million.

 

INSIDE TRACK. The industry scuttlebutt prior to the news of Ayala’s winning the VW contract was that PGA Cars, the importer and distributor of Audi and Bentley, had the inside track because Audi and Bentley are the premium brands of the Volkswagen Group.  Orbeta pointed out that on the other hand, the German carmaker must have seen that Ayala was the partner of choice of Honda and Isuzu, and has stronger experience in the mass market to which those Japanese brands and the VW brand belong, while Audi and Bentley are niche-market brands.

 

With 99 production plants in 27 countries, more than 500,000 employees worldwide and selling motor vehicles in 153 countries, the Volkswagen Group plans to build on “Ayala’s excellent reputation and market knowledge to rapidly and robustly establish the VW brand” in the Philippines.  Thus said Weiming Soh, president for commercial operations for Greater China/Asean Volkswagen AG, when Ayala Land chair Fernando Zobel and Orbeta, who is also AAHC chair and president, signed the importer contract in Hong Kong last May 27.

 

Does the signing of the importer contract in Hong Kong mean that Automobile Central Enterprise Inc. (Acei), the company Ayala incorporated last January to import and distribute VW cars, will source VW vehicles from China?  “What Volkswagen makes in China stays in China,” Orbeta replied. “The cars VW produces in China are for the domestic market.” Acei and VW AG are still deciding on where to source the cars—there are VW production plants in India, Australia, Taiwan, Japan and Mexico, among many other  countries.

 

Although VW AG plans to build an assembly plant in Southeast Asia, Orbeta doubted that the Philippines will be the site because of the lack of market demand here. Ultimately, Acei’s retail prices and sales targets will depend on the source and allocation of VW cars for the Philippines in the context of VW AG’s overall strategy for the Asean market.  As of now, Orbeta quipped, the sales target is “a moving target.”

 

TDI CARS. Orbeta said that Acei will launch the VW brand on Sept. 27 at Greenbelt Park Mall, Makati, with  the display of six 2013 TDI (turbo direct injection) diesel models:  the Jetta, new Beetle, Polo sedan, Touran MPV, Tiguan SUV and Touareg SUV.  Since the popular Golf subcompact will undergo a full model change in the last quarter of 2014, it isn’t included in the initial lineup but will most likely be added in 2015.

 

Meanwhile, not a few were surprised that  Orbeta, a certified compensation professional  who built a solid career in corporate human resources, was appointed chair and president of AAHC, and president and CEO of Acei, Honda Cars Makati Inc. and Isuzu Automotive Dealership Inc. on Jan. 1 this year.  He was the group head of corporate resources, so his transfer to Ayala’s automotive business was sort of unexpected.

 

Maybe it had something to do with his bringing home the bacon—he was the one Fernando Zobel sent to VW AG headquarters in Wolfsburg, Germany, in October 2012, and he was the one who brought home to Ayala the long-awaited and much-anticipated VW contract. This is not to belittle the efforts of those who negotiated for three years with VW AG for a contract, but it looks like JP Orbeta’s persuasiveness, honed by 26 years in HR consulting, strategy, implementation and management here and abroad, helped to clinch the deal.

 

In any case, all these are good signs for the success of Ayala’s VW venture.

 

Timeline

 

Activity    Date

•VW AG appointment of AAHC

Oct.22, 2012

•Incorporation of Acei

Jan. 23, 2013

•Opening of Acei office

April 2013

•Groundbreaking: Volkswagen BGC

May 6, 2013

•Signing of importer contract

May 27, 2013

•Opening of showroom/service center

September 2013

•Brand launch

September 2013