"We hope to regroup the two joint ventures into one in the future," said Zhang Suixin, managing director of Volkswagen (China) Investment Co.

Volkswagen, the passenger car market leader in China, now jointly owns the two biggest Chinese carmakers - Shanghai VW and FAW VW - with Shanghai Automotive Industry Corp (SAIC) and First Automotive Works Corp (FAW) respectively.

"The two joint ventures will strengthen co-operation in sourcing and sales to improve economies of scale amid mounting market competition (as the first step towards the restructure)," Zhang said on the eve of the 2003 Shanghai Motor Show.

The two joint ventures have already started to co-ordinate in sourcing production materials, according to Zhang.

Around 30 percent of Volkswagen's 500 component partners supply both Shanghai VW and FAW VW.

Volkswagen and the two joint ventures are discussing ways to co-operate in sales, he said.

"However, we do face difficulties in the regrouping of the two joint ventures because they have different Chinese shareholders," Zhang said.

Both SAIC and FAW, based in Changchun, Northeast China's Jilin Province, have teamed up with two or more foreign auto giants.

SAIC has other two joint ventures with US General Motors, and FAW has also formed a strategic alliance with Japan's Toyota to produce 400,000 vehicles annually by 2010.

Volkswagen will build a new plant in China because of its insufficient production capacity, Zhang said.

"We are looking for a location for the new plant around China," he added.

Shanghai VW and FAW VW's annual production capacity will increase to 450,000 and 300,000 units respectively by the end of this year, according to Zhang.

"We hope both of the joint ventures' annual capacity will reach 1 million units in the future," he said.

Volkswagen has announced that its output in China will exceed 600,000 units this year and 1 million units by 2007.

The German company's market share in China is declining mainly as a result of competition from other global auto giants, such as General Motors, Toyota, PSA Peugeot Citroen and Honda.

Volkswagen's share of China's car market decreased to 40 percent last year from 50 percent in 2001.

"But we believe we will continue to be the market leader in China by 2010," Zhang said.

Volkswagen plans to invest 600 million euros (US$638 million) in China a year by 2007 to introduce new models and expand production capacity.

The company will roll out five new models this year in China - the Gol, hatchback Polo and Touran multi-purpose vehicle at Shanghai VW, and the Audi A4 and Golf at FAW VW.

(China Daily April 22, 2003)