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The Volkswagen fiasco: A look into the future of our automobile industry

30 January 2017 12:03 am - 0     - {{hitsCtrl.values.hits}}

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The Volkswagen fiasco created much hullabaloo in political and public circles with politicians making haughty statements about how the automobile giant was to invest in our country. However through the discoveries made by the media, it was later discerned that no such investment took place, nor had ever been planned to take place. This made the public express a series of emotions, from hope to utter disgust and apathy towards the government.   
The investment of US$ 26.5 million for an automobile assembling plant was made by a local company. The investors decided to bring in quality brands from abroad to assemble the vehicles at the plant. They initially decided to bring in Volkswagen (VW) as a brand subsidiary company. However, because of the fuel emission scandal of the VW Company, they decided against it. Disregarding the misleading comments made by politicians and perceiving the investment objectively, it can be concluded that this is a good opportunity for our country to increase both revenue and job opportunities.   


The story so far-(Chronology of the events)

n 2015 August 13- The agreement between the BOI (Board of Investment) and Senok Auto-mobile (Pvt) Ltd. was signed regarding the investment of an auto-mobile assembling plant, in the presence of Dr. Michael Dohment (German Ambassador). It was proposed that VW would come in as a subsidiary company.
n 2015 September – VW emission scandal erupted and the VW stocks crashed. Therefore, Sri Lanka decided against bringing in VW as a subsidiary company.   
n 2015 December 19- Prime minister (PM) stated in parliament, “The VW new investment will be delayed, in order to ascertain the income and investments. However, primary will be made by Senok. Subsequently, VW will be coming in as an investor.”  
n 2017 January 3- Automobile plant foundation stone being laid. The PM said, ““I am happy to state that we start work today after establishing the Volkswagen factory in Kuliyapitiya.”  
n 2017 January 5- Expose conducted by a national TV channel. They discovered through a VW spokesperson Katrin Homman that there were no decisions for Volkswagen brand investments to come into Sri Lanka.   
n Subsequently Dr. Nalinda Jayatissa, JVP Parliamentarian stated, “ there has never been such a Prime minister who has mislead the country to such an extent in the past. Regarding the VW investment, he has lied to the people. He is working against democracy and has created mistrust within the public. He should publicly apologize to the people.”  


What was decided in the BOI and Senok agreement (2015)

It was stated in a BOI report that the agreement to assemble cars was signed by Mr. Upul Jayasuriya, Chairman of BOI and Mr. Noel Selvanayagam, President of Senok, which is a BOI Section 17 Agreement, the investor will assemble vehicles in the 1000cc to 2000cc category.   
Upul Jayasuriya, the Chairman of the BOI said, “This is the largest auto-mobile investment that we have had in the country. We signed the agreement, regarding the establishment of a VW assembling plant in August 13, 2015. The signing of the agreement did not simply take place. We had a series of meetings prior to the agreement, with the investor Senok Automobile (Pvt) Ltd. where Dr. Micheal Dohmen, the German ambassador was always present. We were all talking quite openly about VW coming in as a subsidiary company. We had nothing to hide about it. He was also pushing for VW to come to Sri Lanka. He would have quite surely cleared it out with his diplomatic channels.”   

 

 

"In the past when Upali Wijewardene, the former BOI director started assembling Fiat cars in Sri Lanka, the media destroyed him and called him a rogue. They criticized him because he simply imported parts of the vehicle and assembled it to make a car. At that time, even India was not assembling cars and this was around 40 years ago"

 


Dr. Micheal Dohmen, the German ambassador also spoke on the agreement and said, “The embassy is not a party to this agreement. It is essentially an agreement between Senok and the BOI. The VW company was indirectly involved at the time of the agreement. However, I was personally present as well, because there was a proposal where VW would be a brand that would be assembling their vehicles at the plant. The embassy is generally interested in increasing economic ties between our countries. The current Chancellor Angela Merkel even said that facilitating economic policy is one of the main tasks of the foreign office.”   
Mr. Jayasuriya explained the role of the BOI in investments, saying, “For the benefit of the country, we are simply facilitating the investor in proceeding with this investment, bringing technology into the country, enhancing the employment opportunities and the training of the youth. This is not a matter to be sarcastic about because this is a serious investment for the country and the future. Project implementation period will be 3 years, but we need to understand that they will implement the project faster than that. A large source of employment will also be from the country.”   


Where does the confusion truly lie?

The BOI and the investor of the plant need the public to encourage them in this investment. As the BOI chairman said, “we need to be positive because it is a genuine effort. No one has made any money by allowing an investment to come into the country.” This is true to a great extent because the investor has invested a great sum of money in the deal. It would be rather absurd for any investor to invest money and simply do nothing and as a result suffer a loss. The main confusion is because a few politicians stated that it was VW which was investing in the country rather than coming in as a subsidiary company. The primary investor, or the owner rather is Senok.   
It was clear that in 2015, when the agreement between Senok and the BOI took place, it was understood that if VW was coming into the country it would be a subsidiary company under the local investor Senok. However, when the fuel emission scandal took place in September 2015, the country decided against bringing in VW as a subsidiary company.   
Eran Wickramaratne, Deputy Minister of Public Enterprise Development, said, “subsequent to the initiative to manufacture VW vehicles in Sri Lanka, the VW Company was charged with lack of emission control. In September 2015, it went public that the VW investment plans would temporarily halt.  

 

"The confusion is mainly attributed to the misleading statements made by the PM. He claimed that it was VW who was the main investor of the plant."

 


The confusion is mainly attributed to the misleading statements made by the PM. He claimed that it was VW who was the main investor of the plant. The public became hopeful and rather excited and subsequently due to discoveries made by the press became confused and disgusted. In parliament the PM even stated, “The VW investment would be delayed. However, the primary investor would be by Senok. Thereafter the VW will be coming in as an investor.” “  
On January 3 when the foundation stone for the plant was laid, the PM once again stated, “I am happy to state that we start work today after establishing the Volkswagen factory in Kuliyapitiya. However, when a national TV company inquired into the matter subsequent to laying of the foundation stone, Katrin Homman a spokesman for the VW company said, ‘there are no decisions for Volkswagen brand investments in Sri Lanka’.   
This statement was confirmed by Dr. Dohmen, “During the agreement there was a proposal that the company would come in as a brand. But there was a statement of a VW spokesperson who said there were currently no plans to invest in Sri Lanka.”
 Eran Wickramarathne even said “There is nothing unusual about the plant. The assembly plant is an investment to promote jobs and income to the people. The government is not promoting any brand. Like any BOI approved investment, there are conditions according to which the investor will proceed. If the conditions are not subsequently met, the normal process will follow.   
He said quite firmly, “We need to be absolutely clear.
It is true there was an initiative to bring in VW as a subsidiary company, however due to the fuel emission problem, we decided against it. The discretion in which brands to assemble is left to the investor. This is similar to garment factories, where a local investor has deals with major brands like ‘Marks and Spencer.’ We need to understand that the VW is simply a brand while the investor is Senok.”  
We asked Eran Wickramarathne why the government promised the people that VW was coming into the country, “At times some politicians get excited when there are huge investment opportunities for the country. Even when the facts are not confirmed, they try and share this excitement with the public.”  


Fuel emission scandal

The Volkswagen emissions scandal erupted on 18 September 2015, where the VW group was issued a notice of violation of the Clean Air Act by the United States Environmental Protection Agency (EPA).   
Mr. Upul Jayasuriya elaborated on the fuel emission scandal, “ VW has some legal problems regarding its fuel emission. This has resulted in them paying $80 billion damages. Therefore, the investor, Senok, had to change course. We did not want to attract more legal issues into Sri Lanka. Hence, we excluded the VW deal, prior to two to three weeks of the opening of the plant. We replaced VW with a world renowned brand of West European origin. We have left the brand open. The investment is not depended on the brand. We will be happy if it a recognized international brand. This is why we have allowed this change to have taken place and this is the only change that has taken place. Now the investment is going through.”  


Potential to export

In a past report of the BOI, it was discussed that there is potential to export the vehicles manufactured at the Kuliyapitiya plant. We inquired from the BOI in regard to this statement, Mr. Jayasuriya said, “ Before the child is born, it must crawl. These are premature conclusions. We hope whichever brand of cars assembled should be in the future exported.”  


Is this a repetition of the past?

Mr. Jayasuriya showed that automobile investment companies had been criticized before, “In the past when Upali Wijewardene, the former BOI director started assembling Fiat cars in Sri Lanka, the media destroyed him and called him a rogue. They criticized him because he simply imported parts of the vehicle and assembled it to make a car. At that time, even India was not assembling cars and this was around 40 years ago. It is sad because Upali at the time grew tired of the criticism and the discouragement showed by the public and gave it up. He closed down the plant and even the government did not give him any facility to carry it on. But if he was given the opportunity to carry on, we would have been manufacturing Fiat cars in Sri Lanka. Not just assembling. Therefore this has to start somewhere.”  
He added, “There was micro car assembling plant approved by the BOI. It was a rather simple assembly process. Only around $4 million was invested in this project. Even after 10 years they did not export even a single car. However, this kind of criticism was not there for that company. Why are they only talking about this plant, in which the investment is $25 million? Since the Senok plant investment is a high investment, there is more scope for growth.”  


German investments- give hope for the future

Dr. Dohmen said “We are very much interested in increasing our economic investments. Such investments are also increasing in Sri Lanka. The embassy is one place where the companies contact us, get information and give contacts. They have also planned to open a representation of the German economy in the first half of 2017. We already have a few investments implemented by the German business council. They have opened a factory in Sapugaskanda, in 2016. I was also present at the opening. There are also many other smaller companies that corporate with local partners.” 

 

"It was clear that in 2015, when the agreement between Senok and the BOI took place, it was understood that if VW was coming into the country it would be a subsidiary company"

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