German automaker Volkswagen has refuted a recent investment bank report that said its Chinese businesses would be bogged down in losses this year.

"We will continue to be profitable in China this year," said Bernd Leissner, president of Volkswagen China Group.

"Volkswagen will maintain leadership in China's car market this year," Leissner said in an interview.

His remarks were directed against a report from Goldman Sachs released earlier this month that stated Volkswagen would make a loss of more than 400 million euros (US$519 million) in China this year.

Leissner admitted that Volkswagen's two joint ventures in China - its second biggest market after Germany - were feeling the heat as car prices are being cut across the board and profit margins are down, and as other players in China are adding to increasingly fierce competition.

Volkswagen reported an operating profit of 222 million euros (US$288 million) from the two joint ventures last year, down 60 per cent from 2003.

Volkswagen has a 50 per cent stake in both of the partnerships with Shanghai Automotive Industry Corp (SAIC) and First Automotive Works Corp (FAW) - the top two Chinese car makers.

The German automaker's sales in China stood at 116,287 cars in the first quarter of this year, accounting for 18.9 per cent of China's market in the period.

This share was down from 25 per cent last year when Volkswagen's sales in China fell by 7 per cent to 650,000 cars compared to 2003.

Leissner defended the market share slump, saying Volkswagen is the sole car maker in China to have started reporting sales to end users, instead of dealers, in January.

"Our market share would be much bigger if all car makers in China reported retail sales figures," Leissner said.

The joint venture of South Korea's Hyundai Motors in Beijing admitted earlier this month that it reports figures of sales to dealers.

Analysts said this practice has generated huge car inventories and price wars in the past few years.

Last month, Volkswagen said it aimed to control 25 to 30 per cent of China's car market, which will grow to 2.9 million units this year and 7.85 million units by 2011.

"We will build synergies between our two joint ventures in sales and sourcing to cut costs and deal with mounting market competition," Leissner said.

"There is huge cost-cutting potential for us to tap in China," he added.

Volkswagen expects the ventures to use the same channels to sell Volkswagen brand cars.

The joint venture with SAIC has more than 700 dealerships in China.

It produces Volkswagen Santana, Passat, Polo and Gol vehicles, and will make Skoda cars by the end of 2006.

The partnership with FAW in Northeast China's Jilin Province has 350 Volkswagen dealerships.

The venture makes the Volkswagen Jetta, Bora and Golf models as well as the Audi A6 and A4.

The two joint ventures will conduct "unified and large-volume" procurements to cut costs, Leissner said.

Volkswagen will also speed up procurements, particularly of engines and gearboxes, in China or US dollar regions to alleviate pressure from the strong euro, he said.

Volkswagen and FAW will build a new plant next month in Dalian in Northeast China's Liaoning Province to produce 1.8 and 2.0 litre engines.

(China Daily April 27, 2005)