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Volkswagen rethinks China strategy

Volkswagen, the largest overseas carmaker in China, has frozen further investment in the country as it looks to reduce costs amid declining market share. From accounting from around two thirds of market share in 1985, when it started making cars locally, its market share fell to just 15 per cent in the nine months to the end of September, a loss of 11 percentage points on 2004. It also recorded a loss of €23m ($27.7m) in the first half, against a profit of €251m last year.

Under a new restructuring plans unveiled by the company, c apacity will now be kept at 900,000 vehicles a year until 2008 at the earliest, well down on the target of 1.6m units set two years ago, and it will centralise local purchasing with its two joint venture partners. One of these, Shanghai Auto, will be introducing the Skoda brand to the country in 2007 when it launches the Octavia. Local content currently ranges from between 60 per cent and 93 per cent , the company plans to increase this to an average of 90 per cent.

China's total vehicle demand is expected to more than double to 15 million units in 2008 from 6.4 million units this year.