That confident prediction was made by Volkswagen management board member Folker Wiessgerber in an interview at the recently concluded 74th Geneva International Motor Show. China is a vitally important market for Volkswagen, its second-biggest after its native Germany.

But its market share in China has been shrinking in the face of stiff competition.

Rival firms from the United States, Japan and South Korea are all keen to grab a share of this massive market.

The company grabbed 25.2 per cent of China's car market last year, down 5.6 per cent year-on-year, Volkswagen said.

This sharply contrasts with 40 per cent in 2002 and 50 per cent in 2001, showing the extent of the problem that the German motor giant faces.

Volkswagen said its sales in China dropped 7.1 per cent year-on-year to 648,500 cars last year.

This was the company's first fall in sales in China since it started local production almost two decades ago.

Volkswagen Chairman Bernd Pischetsrieder blamed the falling sales and market share in China mainly on "the wide variety of new vehicle models that led to aggressive sales promotion measures and to the use of drastic sales incentives by other vehicle manufacturers."

"Market share (in China) is important for us, but not at any price. Because we did not copy our competitors' sales promotion campaigns, loss of market share was inevitable," Pischetsrieder said last week at Volkswagen's headquarters in Wolfsburg, Germany.

Despite these falls, Volkswagen remains China's biggest carmaker, and analysts say its position is secure in the short term, at least in this respect.

General Motors (GM), Volkswagen's closest rival, controlled around 10 per cent of China's car market last year by selling 257,000 cars in the nation.

Weissgerber said Volkswagen will not put the brakes on its plan to invest 6 billion euros (US$8 billion) from 2004 to 2008 in China, although the nation's car market has slowed down sharply.

"But the plan should be carried out gradually," he said.

China's car market will grow at an annual average rate of 10 to 15 per cent up to 2013, he said.

China's car market will reach 7.85 million units a year in 2013, up from last year's 2.61 million units.

Banks' controls on car loans, traffic congestion in big cities, soaring oil prices and customers' hesitance to buy in expectation of cheaper cars all contributed to a sharp fall in the growth of China's car market from 70 per cent in 2003 to just 15 per cent last year.

Measures

Volkswagen is working intensively to reorient its operations in China to maintain its pole position and profit more clearly from the growing demand in the Chinese market, said Pischetsrieder.

"This reorientation extends to all business processes, but focuses in particular on sharper market positioning, more effective distribution networks and a product programme that is even better tailored to Chinese requirement," he said.

Volkswagen now runs two car joint ventures in China with Shanghai Automotive Industry Corp (SAIC) and First Automotive Works Corp (FAW), the nation's top two vehicle producers.

The two ventures remain the two leading Sino-foreign car joint ventures in terms of annual sales.

"Both of the two ventures will become full-range car producers, as Volkswagen has eight different brands and is able to provide them with different models," said Weissgerber.

He said last year that Volkswagen had been studying the possibility of producing its other brands, such as Skoda, in China.

The group's portfolio of brands includes Volkswagen, Audi, Skoda, Seat, Bentley, Bugatti, Lamborghini and Volkswagen Commercial Vehicles.

The joint venture with SAIC makes the Volkswagen Santana, Santana 3000, Passat B5, Polo and Gol. It will launch a new Passat B5 later this year.

Volkswagen-FAW venture produces the Volkswagen Jetta, Bora and Golf, and the Audi A6 and A4. It will introduce Volkswagen's Caddy van and a new Audi A6 later this year.

Weissgerber ruled out Volkswagen participation in "devastating" price wars in China's car market like many of its rivals.

"We will not be a provider of cheap cars in China... and should be responsible to our customers," he said.

Volkswagen's main rivals in China cut the prices of their cars by between 6 and 32 per cent last year, according to Weissgerber.

Analysts said car makers' regular price cuts were one of the major factors that led to Chinese customers' hesitance to buy cars.

Volkswagen's tough price policy is apparently to preserve its profitability in China.

Volkswagen said it gained an operating profit of 222 million euros (US$297 million) last year from the two joint ventures in China, which analysts said was far less than 2003 because of price cuts and lower sales.

The two joint ventures cut the prices of almost all of their cars last year.

Volkswagen holds a 50 per cent stake in the venture with SAIC and 40 per cent in the venture with FAW.

Challenges from rivals

Volkswagen's target market share of 25 to 30 per cent in China will be hard to achieve, although it will continue to be a leading player in the market, analysts said.

"Volkswagen will be able to control at most 20 per cent of China's car market by 2013," predicted Song Bingshen from China Securities Co Ltd.

"The growth momentum of Japanese, US and Korean producers is much stronger than that of Volkswagen. And they will have more attractive products than Volkswagen in China," Song told China Daily.

GM and joint venture partner SAIC plan to invest more than US$3 billion to double their annual production capacity in China to 1.3 million units by 2013.

The world's biggest automaker said it will introduce a record number of more than 10 new or upgraded vehicles in China this year.

GM's car sales in China grew more than 25 per cent year-on-year in 2004.

Honda Motors will up its investment by 5 billion yuan (US$600 million) with its partners Dongfeng Motor Corp and Guangzhou Automobile Group to double its annual production capacity to 530,000 units in China next year.

Honda's sales in China leapt last year by 74.8 per cent to 215,000 cars.

Ford Motors will build a second 160,000-unit car plant in eastern China jointly with Mazda and China's Changan Motor to produce Ford and Mazda cars.

Ford reported a mighty 200 per cent jump in its sales in China last year.

(China Daily March 17, 2005)