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Volkswagen's China sales hits a bump

A Chinese car buyer checks out a Volkswagen Beetle on display at a showroom in Beijing yesterday. Volkswagen AG appears to be in big trouble in China after reporting a sharp drop in sales in that country while those of rivals soar this year. PHOTO: AFP

Hit by corruption allegations at home in Germany, carmaker Volkswagen AG appears to be in big trouble in China too after reporting a sharp drop in sales while those of rivals soar, analysts say.

Volkswagen's earnings have been under pressure for some time and it reported a loss for the first quarter but now it faces possible job cuts and the shutdown of plants on home turf as it tries to cope with the damage of a bribe-taking scandal involving several company officers.

Late on Tuesday, the company reported half year sales results in China, saying its two joint ventures shifted a disappointing 265,000 vehicles in the first half of the year after 306,000 for the first half of last year.

Although it downplayed the sharp drop as related to a change in reporting methods, analysts widely said that the carmaker faces serious structural problems in China.

"It's been focusing on its production capacity, research and development and sales, while little attention has been paid to cost controls," said Jia Xingguang, chief analyst with China National Automobile Industry Consulting and Developing Corp.

Once unchallenged in the Chinese passenger vehicle market, Volkswagen insisted that this was still the case, saying that this year's volumes were calculated using wholesale figures that could not be compared to current retail sales data.

Meanwhile General Motors, the world's largest automaker, which itself is struggling with sharply declining sales at home, sold a record 308,722 units, a rise of 18.9 percent, in China in the first six months of the year. And at Sino-French auto venture Dongfeng PSA Peugeot Citroen Automobile, total first half sales were up 54.9 percent at 72,470.

Similarly, Japan's Honda saw first half sales in China rise 41.4 percent to 117,641 vehicles.

After 12 months of sharply declining sales due to oversupply, overall sedan sales in the world's third-largest vehicle market recovered nearly 10 percent in the six months to last month, the China Association of Automobile Manu-facturers (CAAM) said.

Whatever VW may say about the different figures, analysts said it could not explain more fundamental operational deficiencies.

Its venture with First Automotive Works (FAW), China's second- largest car firm, FAW-Volkswagen Automotive Co, booked a net loss of 300 million yuan (US$36 million) for the first three months of the year.

This compared with a profit of 1.23 billion yuan a year earlier, a company manager surnamed Li said.

Analysts had been expecting Volkswagen to report disappointing results this year due to eroding margins caused by high material costs, increased competition and a price war that has continued into this year.

Volkswagen insists that it still controlled 18 percent of the China passenger car market but that is a far cry from the nearly 50 percent it claimed three years ago.
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