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VW Expected Rebound in 2006
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German carmaker Volkswagen expects a rebound in its 2006 sales in China after consecutive tumbles over the past two years.

The company's China business hit rock bottom in 2005 but it will regain growth this year, Winfried Vahland, chief executive officer of Volkswagen China Group, told China Daily.

"China's car market will grow by 8 to 10 percent this year which will continue to be the fastest in the world, and we hope to keep up with the pace," said Vahland.

He declined to give a detailed sales target for 2006.

Last year, Volkswagen sold 570,876 cars in China, down from 647,000 units in 2004 and nearly 700,000 units in 2003.

Vahland stressed that the 2005 figure was retail sales, while those of 2004 and 2003 were wholesale.

Although Volkswagen remained the leader of China's passenger car market, it was outstripped by General Motors (GM) in terms of overall vehicle sales last year for the first time in the past two decades. GM's 2005 sales in China reached 665,390 vehicles, including 310,888 Chinese-branded mini buses made at its venture in the southern part of the country.

Vahland has not revealed Volkswagen's 2005 financial results in China.

Last October he predicted that Volkswagen's China operations would break even or be in the red for 2005.

The German carmaker, which kicked off production in China in 1985, runs two car venture with First Automotive Works Corp (FAW) and Shanghai Automotive Industry Corp (SAIC) China's top two vehicle manufacturers.

Analysts attributed Volkswagen's sales declines in China largely to its lack of new competitive products and high costs, as well as strong attacks from United States and Asian rivals.

"Besides introductions of new competitive products, Volkswagen should have to cut costs to deal with hot price wars in China's car market," said Yale Zhang, a Shanghai-based official from CSM Worldwide Corp, a US auto industry consultancy.

"Although the quality of Volkswagen's products are better than Asian rivals, Chinese customers still pay much attention to prices and exteriors as most of them are first-time buyers," Zhang said.

Last October, Volkswagen revealed a plan, the so-called "Olympic Programme," to launch 10 to 12 new models in China by 2009 and cut costs by 40 percent by 2008.

"The year of 2006 will be very crucial for us to push ahead with the Olympic Programme ... I expect Volkswagen will perform well as early as in the first quarter," Vahland said.

In the first quarter, Volkswagen's venture with FAW in northeast China's Jilin Province will launch the Sagitar, a sedan larger than the Bora but smaller than the Passat.

Its venture with SAIC will launch a redesigned Polo later this year and a model of Skoda, Volkswagen's Czech brand, at the beginning of 2007.

"Volkswagen's China sales are expected to recover slightly starting from the second half of this year or 2007 with introductions of these new products," Zhang said.

However, Zhang added that the biggest winner in China's car market this year would likely be Japanese and South Korean carmakers, as they would launch lots of new competitive products, such as Toyota Camry, Honda Civic and Hyundai Accent.

Volkswagen's market share in China will continue to shrink this year and in the near future as sales of Asian rivals grow, Zhang said.

The company held 17.3 percent of China's car market last year, down from 25.2 percent in 2004.

Honda sold 260,000 vehicles last year in China, up 21 percent from 2004.

Sales of Hyundai's venture with Beijing Automotive Holdings Corp surged by more than 50 percent to 224,700 units last year.

Vahland said that inventories of Volkswagen's two car ventures and their dealers dropped by half from a year ago to 81,000 units at the end of last year.

(China Daily January 17, 2006)

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