Struggling Volkswagen Restructures in China

Troubled German carmaker Volkswagen said Monday it would embark on an ambitious cost cutting program to revive its struggling China operations at its two joint ventures. It said it would take a variety of measures, such as centralized purchasing, for the two joint ventures and improve cross-venture cooperation between its partners Shanghai Automotive Industry Corp (SAIC) and First Automotive Works. Volkswagen China president and chief executive Winfried Vahland said a key to this would be differentiation in the positioning of its two joint venture products. Volkswagen, which 20 years ago was the first Western auto manufacturer to come into China, was rewarded for its vision with years of near monopoly of the government and taxi vehicle market. But now, with scandals and financial troubles at home and bloated management in China, the company is struggling in the face of increasing competition. Half-year sales slowed at its two mainland joint ventures to a disappointing 265,000 vehicles after 306,000 for the first half of 2004. Volkswagen is expected to report disappointing results this year due to eroding margins caused by high material costs, increased competition and a continuing price war. Nevertheless the company said it was committed to introducing 10 to 12 new models before 2009 to the China market, the world's third largest, that would better cater to local needs. Volkswagen China spokesman Kai Gruber said the company would seek to reduce production costs by 40 percent over the three-year program. A stronger focus on in-house developments within its China joint ventures and the addition the Skoda brand will be added on to the Shanghai Volkswagen line starting from 2007.