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Volkswagen slashes car prices in China
Updated: 2004-06-17 16:44

Volkswagen AG has cut car prices in China by up to 11.7 percent from Thursday, matching General Motors and heating up their intense rivalry in a decelerating market.

Car prices have been falling in China for years, but cuts are taking on new significance this year as China applies the brakes to slow a racing economy and restricts auto loans, keeping potential buyers at home.

Auto sales in China skidded 19.4 percent in May from April, the second straight monthly decline.

Analysts say car sales may grow just 20 percent in 2004 after nearly doubling to more than two million units in 2003.

Plans unveiled by auto firms to invest some US$13 billion to triple annual capacity to about six million units by the end of the decade have added to fears of a glut and vicious price war.

GM and Volkswagen are fighting for market share, analysts said.

"If Volkswagen wants to maintain its commanding position, it has to follow GM's lead," said auto analyst Zhao Lei at Orient Securities. "It's also a move to cut inventories in light of the slowing car market."

Last month GM, the world's top car maker, lowered prices on two core models in China by up to 11 percent ahead of a major reduction in import barriers next year.

Shanghai Volkswagen, the German company's venture with Shanghai Automotive Industry Corp, trimmed prices on 30 models such as the Santana and Polo. The heaviest cut of 11.7 percent was for the Golf, which now sells for 75,300 yuan (US$9,098).

FAW-Volkswagen, a partnership with First Automotive Works, cut prices by as much as 10.9 percent on 14 models, taking a Jetta down to just under 100,000 yuan.

Inventories rising

Some analysts said Volkswagen may also be trying to clear unsold vehicles. Inventories have been building over past months in China -- the European car maker's largest market outside of Germany -- partly due to falling sales in April and May.

Both GM and Volkswagen, which between them are planning to double capacity to some three million units by 2008, say they are unworried by the decelerating pace of sales.

They say China's growth would still outpace mature markets like the United States.

Volkswagen's Passats now cost upwards of 204,500 yuan, versus GM's comparable Buick Regal, which starts at 206,800 yuan.

Price cuts have already begun to bite, with the first quarter earnings sliding 76 percent at Tianjin FAW Automobile Ltd, the Chinese partner of Toyota Motor Corp.

Analysts say large, established auto makers are unlikely to be too badly affected by sliding prices initially due to their strong brands. But they warn that lower-end producers like Geely Automobile Holdings Ltd could be hit hard.

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