German carmaker Volkswagen yesterday cut prices on almost all of its cars produced in China for the first time amid a slowdown in local car sales and mounting competition from rivals.

Prices of the Santana, Santana 3000, Passat, Polo and Gol made at the company's joint venture in Shanghai, were reduced by between by 3,000 and 10,000 yuan (US$362-1,210).

Volkswagen's other joint venture in northeast China's Jilin Province slashed prices of the Jetta, Bora and Golf by 5,000 to 12,000 yuan (US$604-1,449).

But prices of the Audi A6 and A4 luxury sedans produced at the joint venture in Jilin remain unchanged.

"The move is part of our brand strategy moving towards the Beijing 2008 Olympic Games, and it will benefit customers and enhance our overall competitiveness in China," Volkswagen and the two joint ventures said.

Volkswagen Group China was named as the official and exclusive automobile partner for the Olympic Games.

"Volkswagen's price cut is driven by cooling sales in the domestic car market and attacks from strong rivals," said Zhang Xin, an auto analyst with Guotai & Jun'an Securities Co.

Sales of passenger cars made in China dropped 19.27 percent year-on-year to 177,700 units last month.

Last month, car inventories of manufactures in China exceeded 100,000 units.

Earlier this month, Nissan's joint venture with Dongfeng Motor Corp cut prices of the Sunny and Bluebird sedans by 10,000-20,000 yuan (US$1,200-2,410).

General Motors' joint venture in Shanghai last month slashed prices of the Buick Regal, Excelle and GL8 by 20,000 to 40,000 yuan (US$2,410-4,830).

"Volkswagen's move will have great impact on the domestic car market during the rest of this year as it is the biggest foreign carmaker in China. Many other manufacturers will have to follow suit to protect their market share," Zhang said.

French carmaker PSA Peugeot Citreon's joint venture in Central China's Hubei Province said to China Daily yesterday night that it is to cut price of Citroen Elysee sedan by 10,000-12,000 yuan (US$1,210-1,449) today.

"Volkswagen's price cut is not unexpected for us," said an official from the French joint venture.

"Price is one of the biggest factors affecting car sales in China now. Manufacturers seems to have no better ways than price cuts to boost sales," said Jia Xinguang, chief analyst with the China National Automotive Industry Consulting and Development Corp.

"Manufacturers now cannot have a big market share depending on only one or two new models as there are so many new products launched every year."

Car prices in China remain much higher than in developed markets. Carmakers in China are blamed for enjoying large profit margins.

"Our price cut has been paying off with steady sales growth," said Huang Huaqiong, public relations manager at Shanghai GM, General Motor's joint venture.

Shanghai GM's sales surged by 99.2 percent year-on-year to 117,279 vehicles during the first five months of this year.

The venture has lifted its sales target for the full year to 300,000 vehicles from 285,000 units.

"Volkswagen should further adjust its strategy of marketing, sales and new product introduction in China in line with the latest development of the local market to protect its market share," Zhang said.

Volkswagen sold 697,000 cars in China last year, accounting for 30.8 percent of the total domestic passenger car market. But the ratio was down from almost 50 percent in 2001.

"However, it will be very difficult for Volkswagen to maintain its current market share in China as all the other auto giants are increasing their efforts. Twenty-five percent will be a decent slice of the market for it by 2008."

Volkswagen has not revealed how many cars it sold in China from January to May this year, but says growth was only 3 percent from a year ago.

To safeguard its leadership in China's car market, Volkswagen plans to invest 60 billion yuan (US$7.2 billion) and enhance its annual output in China to 1.6 million cars by 2008.

General Motors last week announced that it plans to add investment of more than US$3 billion and more than double its annual production capacity to 1.3 million vehicles in China over the next three years.

Japan's Honda car joint venture in south China's Guangdong Province said its sales stood at 58,864 units during the period, jumping 60.2 percent from the same period last year.

(China Daily June 18, 2004)