VW Philippines: A series of unfortunate decisions and events
So Volkswagen is out of the Philippines. The Ayala-led company, AC Mobility (and Automobile Central Enterprise, Inc.) has concluded its tenure as the importer, distributor, and dealer of the brand after 12 years.
To be honest I’ve been dreading having to write this, but I’ve been waiting 7 years for it to happen.
Yes, I’ve been staring at the writing on the wall for Ayala and Volkswagen since 2018, wondering when it will actually happen. Now while I have never been employed in an automotive company like a distributor, I did work at a dealership way back then, and have since been working as a motoring writer for almost 20 years now. All I can provide are observations of many telling incidents caused by lapses in product planning, expectations disconnected from the general sentiment, outright moments of carelessness, a corporate culture that is probably incompatible with the automotive market, and even a failure to recognize one of the realities of negotiating with foreign entities.
Ultimately, my perspective is that the story is about the birthing pains of inexperience operating in the auto industry and how to build a reputable automotive brand for Filipino customers, even though it all started so well.
On a very warm evening in September 2013, I was there in a suit at a temporary outdoor auditorium at the heart of the CBD, witnessing the return of Volkswagen to the Philippines. The country does have one of the largest, if not the largest clubs of Volkswagen enthusiasts, but has not had an official distributor or manufacturer for a long time. The brand launch promised the arrival of Volkswagen models like the Jetta, Touran, Tiguan, and Touareg, with others like the Passat, Phaeton, and 21st Century Beetle to follow. We were very excited, to say the least.
While the cars were the stars for many of us in the motoring press, it wasn’t hard to see the real message of the event. We were on Ayala Avenue, at Ayala Tower One, hosted by a new importer/distributor under Ayala, and a launch led by Fernando Zobel de Ayala himself. There is no mistaking the flex here: it may say Volkswagen on the invite, but this is Ayala. Full stop.
Ayala was no stranger to the automotive business in 2013. They do have a stake in two Japanese brands, Isuzu and Honda, but they have had little to no experience in running their own automotive arm. Still, they wanted their own, and Volkswagen was the perfect opportunity for them to make their mark as their own house. The synergy writes itself. I mean, one of the most respected auto brands (pre-dieselgate) and the oldest corporation in the country with stakes in real estate, retail malls, energy, banking, telecommunications, you name it, Ayala probably has it or a stake in it.
To be honest, it was great to see models like the Jetta, Touran, Touareg, Tiguan, Passat, Beetle, and Golf GTI (later on) in showrooms here. These are the cars we’ve been missing out on, as you’d only find these at gray market dealerships before September 2013.
We noticed some unusual things almost immediately. They were not actively promoting the brand to get the word out there that Volkswagen is back and with Ayala. While it is a known marque, promotion is still key, which is what all brands -whether established or new in the market- have to do: big public events, many mall displays, hold test drives for the public and the press, so on and so forth. But that wasn’t done on the scale that it should have been done. The impression is that Volkswagen -on logo alone- can rise above all the noise being generated by rivals.
There was also the marketing that Volkswagen is a premium brand. There does exist the perception that Volkswagen -being a European brand- is above the established Japanese brands in our market, like Toyota, Honda, Mitsubishi, Nissan, and the like. While yes, the designs do seem nice and clean with the many straight lines and softer interior touchpoints expected of German cars, VW is a mass market volume brand. It should be competing head-to-head against other volume brands from Europe, Japan, and North America on price and on spec, but that’s not what we got. Case in point: the 2014 Jetta I reviewed.
When I was handed the keys to the 2014 Jetta, I remember being so underwhelmed. While I did expect a higher SRP than most Japanese brands at PHP 1.295M (with an introductory price at PHP 1.1M), I did not expect it to be so much more. It cost almost PHP 300k more than the 2015 Altis 1.6V at the time, yet the Jetta I drove still had a manual gearbox, a bland exterior, fabric seats, and no Bluetooth. Sure, it had a diesel (ah, diesel and Volkswagen in 2014), but the engine kept cutting out when trying to pull away in first gear unless you rev it because of a cutoff logic in the ECU. The price is premium, but the spec is poverty.
For a brand that literally means People’s Car, you had to spend a lot more just to get an equivalent spec to a Japanese car. Despite the promise, sales were not great in 2014 and 2015 as Volkswagen sold just 1,214 cars over two years. The key issue: price.
The pricing is largely a result of a lack of free trade agreements with the countries in which the vehicles are produced. The tariff, VAT, and ad valorem tax for the vehicles would be high, and so it became a challenge for product planners at VW Philippines to find a way to make each unit profitable while still offering customers a proper spec for their money and having a budget for marketing the vehicle, like dealer upkeep, promotions, events, and the like. But that notwithstanding, we were also learning of some unusual errors when vehicles were being imported.
Many years ago, I learned of a particular batch of brand-new Volkswagen Beetles (A5) that arrived in the country. It was all well and good for the nameplate that made Volkswagen a household name, but there was one problem: whoever specced the order forgot to tick a box that said ‘airconditioning’ on the form. The insider story goes that management relegated the job to a very junior employee without verifying. Can you imagine a Beetle (A5) from an authorized importer arriving in a tropical country without A/C?
From what I heard, they were still able to sell them to customers who were willing to buy them at a significant price cut. The catch: how they fit an A/C was up to them. If you’re one of those customers, we’d love to know and see how you retrofitted your Beetle A5 with A/C. We’re not so sure what happened to the person or persons who specced those cars, but we imagine they would be much more careful in speccing cars in the future.
This is just one example of the many birthing pains of VW Philippines, but nevertheless the cars were starting to sell even though the pricing was off. They were starting to do well, and Volkswagen started to become more visible. In 2016, Volkswagen Philippines notched 1,060 cars, followed by 1,363 cars in 2017. They started to grow and cruise nicely, but there was supposedly an internal debate on how to do more, and fast. There was an internal pressure for greater volume, and the pricing was seen as the issue because it is.
The pricing wasn’t such a huge problem, the higher up the model range you go. While many would have paid the PHP 4.3M for a Land Cruiser 200 in 2015, the Touareg TDI at the same price -while a smaller vehicle- was a viable alternative if you wanted to stand out from the vast sea of LC200s at the time. But the problem is with volume models. There existed no factory where we had an FTA for vehicles like the Polo, Jetta, and Touran to bring the price down to be more competitive with other models from Japanese brands. The only logical course: try to set up production here.
To avoid getting sued, I will write in a hypothetical manner when referring to certain events that could have happened. If I were an automotive distributor and I wanted to bring down the price of my vehicles for the long term as well as expand the business, then I would bring together the OEM and the government. I would try to get a deal whereby the OEM -through me- would be able to get favorable conditions from the government, like tax breaks, incentives, so on and so forth, so the OEM will set up a factory here. A manufacturing plant would generate jobs directly and indirectly (thanks to the parts suppliers), more income for the government, generate lower prices, and even open the export potential. Win, win, win, and many more wins in one fell swoop.
To do this, I would fly certain government officials to the home of the OEM for some high-level meetings, presentations, and experience the hospitality of the brand. I would even attempt to impress said government officials with a visit to the brand’s factory to see the expansive scale and sophistication of the brand’s manufacturing processes and the many robots doing extremely precise work. And then I would conclude it with a test drive of as many of the OEM’s cars, up to and including their supercar, on a high-speed test track.
If such a trip and negotiation existed and went well, then there would be a manufacturing plant set up here. But as you can see, none materialized. The Philippines is not an export manufacturing hub for any automaker.
So the only option on the table is to try to find somewhere else to import Volkswagen cars from. And if you look at their footprint worldwide, the options are slim. At this point in time, Volkswagen was also choking on the widespread pains of the Dieselgate scandal. To segue for a bit, about a year before Volkswagen was being set up in the Philippines, another insider told me that certain questions were asked from abroad regarding diesel quality and regulations standards in the Philippines in 2013. Since our emissions standards weren’t so stringent, the first lineup of VWs in the country was primarily TDI.
If you’re wondering, yes, we have dieselgate-affected units here. Whether the programming was active or installed in local units, it didn’t matter, as TDI at the time would meet local regulations. And after the issue came out abroad, the local Volkswagen distributor imported more units for sale to the public, as Dieselgate was a non-issue here. Okay. Segue over.
What options are there for Ayala-led Volkswagen Philippines to increase its volume by bringing in cars that people can find more affordable? Well, import from the People’s Republic. On paper, it makes sense: Volkswagen at the time was the #1 automaker in the PRC and had huge economies of scale from its many factories all around the mainland.
And so a deal was pushed and agreed upon by Ayala’s distributor and Volkswagen AG to source Volkswagen models made by SAIC-Volkswagen. Yes, the same SAIC that makes MG, some models of Chevrolet, Maxus (was also distributed by Ayala’s AC Mobility), Roewe, and IM.
That is when the countdown timer began in my mind. I felt they made a serious miscalculation about the sentiments of customers, especially those who hold the VW brand in high regard. When we visit a Volkswagen dealership, we want to see the Golf, Scirocco, Jetta, Passat, Tiguan, Touareg, and Beetle. After the switch in mid-2018, all they saw was Santana, Lavid, and Lamando. These were VWs you’d see in Shanghai or Beijing, not the ones you’d see when you went to visit family in Los Angeles, rented when you dropped by London, saw driving around the streets of Paris, and definitely not in Berlin or Frankfurt.
I pressed Volkswagen Philippines executives at the time about it, and I told them I did not agree, even as many were congratulating them during the launch of the new Chinese-made lineup. I saw similarities to the time when we still had Nokias in our pockets, and many of us made sure we saw Made in Finland on our GSM phones rather than Made by Nokia because the latter would have meant China. With VW cars, it’s the same. Perhaps even more so.
Their senior adviser, himself a former VW AG employee, rebutted and told me that Chinese-made Volkswagens are as good if not better, given the newer machinery in China, as German-made Volkswagens. So I quoted him on that, and I could imagine the uproar in Wolfsburg over the remark.
More importantly, the Filipino customer saw straight through it, and so did we in the press, even though only a few chose to write it and say it as it is. The Santana definitely felt cheaper in feel to the Polo. The same goes for the Lavida when compared to the Jetta, and for the Lamando when compared to the Passat. Even the sole nameplate that remained was also downgraded because the VW-SAIC Tiguan (while bigger as it was a long wheelbase model) was literally a generation behind the then-current generation Tiguan from Germany that VW Philippines launched a year before.
Here’s a hypothetical: Had VW Philippines done the phase-in of Chinese-made vehicles on a one-model-at-a-time basis to ease the market into it, would things have gone smoother? Maybe, but we’ll never know. Here’s another hypothetical: If VW Philippines sourced models from the other VW joint venture in China (FAW-VW), which had the familiar nameplates like Scirocco, Jetta, T-Cross, and Golf, could things have gone better? Probably, but again, we will never know.
Even though VW Philippines used the marketing phrase German Engineering, customers didn’t buy it figuratively and literally. The sales of 1,060 units in 2016, 1,363 units in 2017, and another 1,363 units in 2018 did not reflect in 2019. In that year, Volkswagen dropped by more than half to 550 units. In 2020, because of certain global events, the number dropped even further to 177. It did recover to 604 in 2022, but fell back down sharply to 269 units in 2023, and finally to 228 units in 2024. The numbers don’t lie.
We witnessed as Volkswagen’s flagship dealership in BGC was relegated and shrunk to be part of a multi-dealership facility a few corners away. We saw many other Chinese-made automobiles start to gain acceptance in our market, but not VW-SAIC models. To their credit, they did launch the VW-SAIC T-Cross, which was alright, but not great. They even launched the Tharu compact crossover, but at the price of much larger SUVs from Japanese brands.
As an outsider looking in, my only conclusion is that the mindset at Ayala’s automotive arm was not in touch with what Filipino customers wanted or expected. Even if it was pricier, if Ayala had continued to give VW customers and intenders the German or Mexican-made models, the vehicles would sell. Perhaps not in great numbers, but they would likely have sold. Case in point: they imported a batch of VW T6.1 Multivan Kombi for a staggering price of PHP 3.595 million. And so I questioned another insider about the price at the time.
“Pare, I wanted that van to come in,” said the insider. “Even at 3.6M mabebenta ko yan kasi gusto ng mga customer ko yan: German na oto.”
[Dude, I wanted that van to come in. Even at 3.6M I can sell it because that’s what my customers want: a German car.]
True enough, the batch of pricey T6.1 Kombis sold out quickly, and it shows that there are those at Ayala who know their stuff when it comes to selling cars to Filipino customers. But the problem here is that those voices are often too few and end up being overridden or outranked by other, more senior, and even foreign voices and opinions. If a local voice from someone with experience on the matter is overridden because of internal corporate politics, as well as by foreigners who do not know the local market, then that is a major problem. It makes an organization lose touch with the market, with customers, and with the many VW fans here.
I won’t go so far as to say VW and Ayala were a partnership that was doomed from the start, but it was definitely hampered by decisions made at the beginning and at key points in its existence that took the brand further and further away from what Filipino customers wanted. That is how it failed, from this outsider’s point of view.
There is a silver lining, though: As painful as it was for many of us who admire the VW brand to see and as expensively embarrassing as they are for a legacy conglomerate like Ayala, many of the lessons they learned are now being put to use with their two remaining automotive brands: BYD and Kia.
Time will tell if it was worth it for Volkswagen in the Philippines to fall in line for Ayala to move even further forward with Kia and BYD.
Author: Vince Pornelos
Source: Volkswagen x Ayala: Doomed from the start?
Disclaimer: This article contains information sourced from publicly available reports, official statements, and reputable news agencies. Proper credit has been given to original authors where applicable. Any direct quotes or references have been attributed accordingly.