During the first quarter, Volkswagen brand sales in China surpassed sales in Germany for the first time, according to Automotive News Europe.

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VW-branded vehicles, made in China by two joint-venture companies, recorded sales of 149,500 units during the first quarter, compared with 114,000 units in Germany.
John Lawson, analyst for Smith Barney, estimated that China provided 22% of VW’s net income in 2002, or 570 million euros.


VW owns 40% of the FAW-VW joint venture and 50% of the Shanghai VW joint venture.


Lawson said VW has maintained its 40%-plus market share in China in the first quarter.


“It’s extremely profitable,” said Lawson of VW’s China operations. “We didn’t expect it to be more profitable in 2003. That is because they’ve launched five new products in China. The cost of expanding is significant. And secondly, the price level in the market is coming down somewhat as import tariffs reduce.”

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Sabine Blumel, automotive analyst for Banca IMI, said it is too early to predict the impact of the SARS virus.


“If it continues, it would hit VW pretty hard” because of VW’s dominance in the Chinese market, she said.


Lawson said the impact of SARS is difficult to predict, but it is likely to be a short-term disruption.


“SARS has not been nearly as prevalent in Shanghai as in Beijing,” he said.


“From a production perspective, VW may have much less problem than many of the other manufacturers who are there. SARS doesn’t seem to have made a huge dent in demand yet.


“We’ve seen financial markets get a little more relaxed about SARS,” he said. “The feeling is that the worst is over in some parts of Asia, but I don’t think China is included in that.”