Volkswagen: Russia not doing as well as expected

Reporting by Kaori Enjoji | Writing by Katie Holliday
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German car maker Volkswagen's business is falling short of expectations in Russia, its CEO told CNBC at the Auto China show on Sunday, amid ongoing tensions between Russia and Ukraine.

Reports of a deadly gun attack in Eastern Ukraine over the weekend have revived worries over tensions between the two countries, and the implications for businesses operating in the region.

If the European Union imposes further sanctions on Russia, this could make relations difficult for companies like Volkswagen which has invested heavily in the country.

But CEO Martin Winterkorn told CNBC he did not see any immediate threat to his company's business in Russia.

"In Russia we are building an engine factory, we are building trucks there, we don't see any problems for now. But we are keeping a cautious eye to see how things develop," Winterkorn told CNBC.

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Volkswagen sold 300,000 units in Russia last year, according to Volkswagen Russia's website. Since the opening of a plant in Kaluga, a city Southwest of Moscow, the vast majority of vehicles sold there are produced domestically.

The firm had targeted the sale of half a million units in Russia this year and has plans to invest €1.8 million ($2.49 million) by 2018, according to car industry magazine Automobilwoche.

Last month Reuters reported that Volkswagen's finance chief Hans-Dieter Poetsch said the firm was grappling with the effects of the Ukraine crisis, which was placing a "clear burden" on its Russia business. Meanwhile the related volatility in Russia's domestic currency, which has fallen 8.5 percent this year against the dollar, was also proving a headache.

Winterkorn acknowledged Volkswagen was seeing some slowing in traction in Russia.

"At the moment we are not totally on track, our sales figures decreased a little bit but not to the extent that many feared. Ukraine is a different case, but Russia is still doing well though not with the growth rates that we originally expected," he added.

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Chairman of the board of Voklswagen Martin Winterkorn presents the new VW Golf Sportsvan during the Group night at the international motor show IAA (Internationale Automobil-Ausstellung) on September 9, 2013 in Frankfurt am Main, Germany.
Thomas Lohnes | Getty Images News

Eye on China

But the maker of the Audi, Bentley, and Porsche's largest single market is China, where it sold 3.27 million units in 2013. Winterkorn said electric vehicles were the manufacturer's key focus in the world's number two economy.

"Electrification is something we are taking very seriously in China," said Winterkorn.

"We are showing plug in hybrids and battery electric vehicles for China to ensure that we can cut emissions in the cities. We offer it at Porsche, Audi and Volkswagen and I believe this is a major contribution for the future of China," he added.

Another key topic at the Beijing-based Auto China 2014 – which started on April 21 and is running to April 29 – is big data and how players in the automotive industry will balance their desire to collect data while respecting consumers' privacy.

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"This means that the IT and automobile industries will get closer to each other," said Winterkorn.

"We want to have control of the data that is generated in our cars, that's why we need to find ways together with the big internet and IT companies to protect the data of our consumers, especially their personal data," he said.

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Recalls reflect sensitivity

Winterkorn also commented on the issue of vehicle recalls, against a backdrop of 15 million recalls in the global automotive industry this year.

Earlier this month, Volkswagen said it would stop selling about 27,000 of its Jettas, Beetles, Beetle Convertibles and Passats with 1.8 liter engines and automatic transmissions in North America, due to the risk of transmission oil leaks.

When asked if the reason the industry was seeing so many recalls was linked to companies' rushing out their products to get there first, Winterkorn said he saw this as a factor.

"One issue is certainly pressure, volume growth too. But I think all in all, our customers have become much more sensitive. What used to be handled as a complaint is now often a recall, because we want to satisfy our customer, that's why the automotive industry is much more sensitive than 10 to 20 years ago," he added.