When Volkswagen Entered China

NEW YORK ( TheStreet) -- As Volkswagen competes to become the world's biggest automaker, largely on the strength of its China sales, a new book recalls the automaker's early days in what is now the world's leading auto market.

The autobiographical book Bridge Builder by Walter Kiep, published by Purdue University Press, recounts the journey of one of post-war Germany's leading entrepreneurs, businessman and semi-official diplomat who was the longtime chairman of Atlantik Brucke, the influential German-American friendship organization.

Born in 1926, Kiep lived through a remarkable period in German history that includes the rise of Nazism, defeat along with economic and structural destruction, and then a re-emergence which he helped to shape as one of the world's leading powers. VW has a parallel story.

Shortly World War II ended, a young Kiep went to work on the Ford ( F) production line in Cologne. At the time, Ford in Germany produced small trucks for sale exclusively to Allied armed forces. In 1948, Kiep became a Ford salesman at a propitious time, because that June monetary reform and the creation of the deutsche mark suddenly reinvigorated the economy. "When currency reform came, a big boom began," Kiep recalled.

Initially, most Germans could not buy cars, but that did not stop Kiep. He sold Fords to allied forces and, realizing he could sell auto insurance as well, became an agent for a U.S. insurance firm. In 1955, he took over the division of another U.S. auto insurance firm just as Germany's auto industry was taking off. His main client was Volkswagen, which was in the early stages of producing the Beetle and exporting them to the U.S. At peak in 1970, nearly 600,000 Beetles were shipped here. The outgoing Kiep was in the middle of it, providing insurance for the shipments and building friendships in this country.

He also entered German politics, becoming in 1974 finance minister of Lower Saxony, one of the 16 German states, which held a stake in VW. This got him a seat on VW's board. He stayed there for 21 years and played a key role in the automaker's entry into China, which began with 1982 negotiations with the mayor of Shanghai, leading to a deal to build a plant there.

"Prospects were not promising, as China was not prepared to allow direct investments, nor was there a ready market for automobiles," Kiep wrote. "Only officials were allowed to have cars." On the plus side, they wanted better cars than the junkers made in China at the time, and they realized demand would grow. Kiep engaged Shanghai leaders during a 1984 visit, and worked to complete plans for the plant, where production began in 1985.

Soon afterward, Kiep turned up in Tokyo, meeting with Shoichiro Toyoda, son of Toyota's founder. They discussed the Shanghai deal. "He said, 'Have you done that? Are you out of your mind doing something with the Chinese?' because they would steal the technology," Kiep said. "But two years later, Mr. Toyoda followed our example."

In 1988, Kiep was again in China, where he still visits regularly. He learned that First Automobile Works in Changchun was expected to sign a deal with Chrysler, but was hesitating. "I was asked directly: Would Volkswagen be interested in a second joint venture?" The subsequent arrangements excluded Chrysler and led to establishment of the first Audi production line in China and then to a VW line. Today, China is VW's largest single country market.

Kiep's book is full of similar tales in which, as a charming representative of a country that seems always ready to do business, he engages people at every level.

Of course, at his core, Kiep embraces German precepts, including austerity for Europe. Regarding the current crisis, he said that what is most important is that "the German government supported by the French government has convinced all the members of the European Union to accept a certain fiscal authority of the European Commission in their budget policies, so that countries cannot over-invest or overspend," he said. "This is the only hope we have.

"The European Union and its cooperation has the greatest importance for Europe," he said. "Eventually, this step for fiscal control is the first step to create a unified Europe (although) I will not live to see it."

-- Written by Ted Reed in Charlotte, N.C.

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