AG’s increased share of the Chinese market in the first five months of 2001 was
due to its superior sales and marketing structure, Ralf Laudenbach, managing director
of sales subsidiary SAIC-Volkswagen, told Germany’s Handelsblatt newspaper.

The Chinese operation boosted its share from 50 percent in January to 53 percent
by the end of May.

Handelsblatt said that car sales in China used to be restricted mostly to state
organisations but the country’s newly emerging middle classes have altered demand
patterns with private buyers now accounting for 40 percent of sales, up from
just 10 percent a few years ago.



Laudenbach predicted that private car ownership would continue to show strong
growth as Chinese wages increase. Cuts in state taxes on private cars and falling
vehicle prices will also enable families to realise their dream of owning a
car, he told Handelsblatt.

Volkswagen makes a previous-generation Jetta model in the northern Chinese
city of Changchung, capital of Jilin province, in a joint venture with local
company First Automotive Works (FAW).

The Santana (based on a 1980s generation Passat) and a newer Passat model are
both built in Shanghai in partnership with Shanghai Automotive Industry Corporation

Handelsblatt said that VW is already making large profits in China and is planning
to invest more than $US1.5 billion in new, state-of-the-art manufacturing facilities
so it can start production of the current Bora (sold as the Jetta in North America)
in Changchung and Polo in Shanghai.

The German company is also shifting from an earlier policy of only building
obsolete models, no longer in production in the West, in China. It has already
announced that future new models will be launched in China at the same time
as they debut in other world markets.

Laudenbach told Handelsblatt that a million locally built cars will be sold
in China in five years’ time, compared with an expected 700,000 this year.



He added that VW intends to maintain its market share at least the current
level, which will mean boosting unit sales to 450,000 in five years’ time. He
said new financing programmes should help it to achieve this goal.

Handelsblatt said that China’s planned admission to the World Trade Organization
(WTO) will see a gradual reduction in the country’s taxes on new cars.

A tax of as much as 70 or 80 percent is currently levied but this is expected
to be reduced in stages to a flat rate of around 25 percent by 2006.

Regulations requiring at least 40 percent local content will also be scrapped,
the newspaper added.

VW forecasts that 150,000 cars will be imported into China by 2006 and plans
to boost its own imports of new, high-value models, Handelsblatt said.

The newspaper said that Chinese suppliers would be subjected to more intense
competition following WTO admission and that VW plans to help its Chinese suppliers
increase competitiveness so that they can participate in the German company’s
global parts supply network.

VW expects its Chinese car prices to fall by at least 25 percent as a result
of the country’s WTO membership. "We’re prepared for even more,"
Laudenbach told Handelsblatt, pointing to benefits the company expects to derive
from its global purchasing resources and the optimisation of its supply network.

To view related research reports, please follow the
links below:-

in China: A Market Analysis

world’s car manufacturers: A financial and operating review