By on June 16, 2010

Taiwan’s Premier Wu Den-proudly announced that a senior executive of Volkswagen met with him last week for a second time on the company’s plans to set up a plant in Taiwan. A little later, Wu Den  Said that not one but several foreign carmakers have expressed interest in setting up factories in Taiwan. Why the sudden interest in the tiny island?

Mainland China and Taiwan are getting closer. At least economically. The Economic Cooperation Framework Agreement (ECFA) is due to be signed in June. Or in July. Or real soon now. The agreement is not without its critics in Taiwan. Some say, it’s is a cover for unification with mainland China. Wu Den needs good news to sell the pact.

Volkswagen is the largest brand in China, and stayed away from production in Taiwan. First, it makes little sense to make cars in Taiwan for Taiwan. Taiwan’s population is around 23m (the size of Beijing) and is declining. Second, Volkswagen has a distributor in Taiwan, Swire Group subsidiary Beldare Motors Ltd., with not much in sales.

What Taiwan has is a reputation for (Japan-influenced) precision manufacture and electronics prowess. Once the ECFA is in effect, whole cars cannot be exported to China yet without incurring tariffs. Parts could. Setting up a precision parts plant in Taiwan that could export to an open Chinese market would make sense.

And this is what seems to be going on. “We will not just focus on the ECFA tariff benefit in deciding the fate of the new investment project. The key lies in whether a division of labor can be created between the Taiwan plant and those in Southeast Asian nations,” said an unnamed official of Volkswagen Group China.

The reports should be treated with great caution. They are fraught with mistakes. There is no such thing as a “Volkswagen China Co.” And Volkswagen is not the world’s largest car manufacturer, as the Taiwanese are being told. Volkswagen was #3 on the (still valid) OICA list of 2008, and was #3 in 2009 according to numbers released by the world’s largest automakers.

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6 Comments on “Volkswagen To Start Production In Taiwan? Let’s See …...”

  • avatar

    Singapore and S.Korea are the only Asian nations with free trade agreements with the USA. Maybe some of those compact Thai pickups could come our way via Singapore?

    • 0 avatar

      I think the light truck tariff would still apply in the case of transshipments as mentioned above. In any case, an importer could get around the high duty rate for finished vehicles by importing the trucks partially assembled, e.g. in CKD form.

  • avatar

    Well, Taiwan already has some local vehicle assemblers doing Nissan, Ford, Toyota (the largest) and a few others. The oldest and largest is called Yulon, which used to produce Nissan models with their own name on them, and even producing their own model called the Feeling back in the early 90s; they have since abandoned their own efforts to make their own national car brand.

    It does make sense for Taiwan to have an auto parts plants but for fully assembled vehicles the market is relatively small.

    • 0 avatar

      My uncle works at Yulon. He kept and actually drives a Yulon Feiling, an interesting little car based on the late ‘80s or early ‘90s Nissan Sentra’s chassis and engine. They like to boast that Porsche stopped by with a desire to soup it up, but Nissan intervened (this was back when Porsche was broke and doing that sort of thing). Then the company came under new, unambitious leadership and for a while and they were just modifying door panels and bumpers for GM’s Asian market cars – but they’re coming up with original products now, mostly for the Chinese market.

      Thanks Mr. Schmitt for pointing out the ECFA criticisms. It’s not just the unification thing (which I’ll try to avoid talking about), but there’s also concern that similar deals have decimated certain industries in Vietnam, Thailand, and Indonesia. It’s risky to sign a mostly-free trade agreement with a government that has direct control over its industries and isn’t afraid to use them in non-free market ways.

  • avatar

    Hedge against rising costs in the mainland.

  • avatar

    That’s a good possibility. I wouldn’t imagine your could get better precision from a plant in Taiwan than the mainland. In addition to a hedge on costs creating additional economic ties with Taiwan is definitely in China’s long term interest, and in the interest of a company that does a lot of business there.

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