Volkswagen to make small car in China, calm on euro

TOKYO, July 3 Reuters reported that Volkswagen AG , Europe's biggest automaker, said on Wednesday it would launch a small car in China in the coming year to protect its dominant share of a market it expects to double in size within five years.

Volkswagen has seen its share of the Chinese market fall below 50 percent because of a boom in cars costing less than 100,000 yuan ($12,080), some 10 percent less than its cheapest model, a Santana sedan.

"This is the segment, the price class, that is showing the most dynamic growth and we're going to react to that," board member Robert Buechelhofer told Reuters on the sidelines of a German business conference.

"We're going to fight to get our market share back up to 50 percent," he said.

German business daily Handelsblatt last month said VW might launch its Lupo model to reverse a decline in its Chinese market share to 47 percent from 51 percent.

Many car makers have slashed prices or introduced cheaper models since China's entry into the World Trade Organisation last December, anticipating an influx of imports prompted by a reduction in tariffs.

Buechelhofer declined to name the model but said it would be built in one of Volkswagen's existing Chinese plants.

Earlier, VW China spokesman Michael Wilkes said: "Under the Volkswagen umbrella there are a number of models that would be suitable. No decision has been made, but it will be an existing Volkswagen model with some modifications for the China market."

PUTTING UP WITH THE EURO

Buechelhofer, who reaffirmed VW's target of matching last year's group sales figure of five million units, said he was not concerned by the recent sharp rise in the euro.

A weak euro has propped up VW's profits in recent years by boosting exports, especially to the United States, and analysts have expressed concern about the impact of a sustained rise in the single European currency.

VW's U.S. sales in June fell five percent from a year earlier to 32,659 vehicles.

"Of course it's a whole new ballgame, but you have to put up with it," Buechelhofer said. "In business, you can't assume that you'll always have only positive exchange rate effects."

China's car market is one of the world's most promising thanks to rising incomes and a large population.

Buechelhofer said he expected sales to reach 1.2 million to 1.5 million within five years, compared with 700,000 last year, with imports grabbing a 15 percent.

He said VW's ultimate aim is to export cars from China as well as meeting domestic demand. The firm's plants rank among VW's five best in the world for quality and are already exporting some components to VW in Germany.