Shanghai Volkswagen Cutrs Prices On Full Size Sedan

SHANGHAI April 14, 2003;-Ramoncito dela Cruz writing for Dow Jones reports that Shanghai Volkswagen, a joint venture between Volkswagen AG and Shanghai Automotive Industry (Group) Co., Monday effectively reduced the price of its full-sized Passat sedans by around 10%.

The price cut comes a few months after Guangzhou Honda Automobile Co. launched a new Accord sedan that is about 14% cheaper than its old model, a move industry analysts said could trigger a price war in the mid- to high-end car market.

Guangzhou Honda is a joint venture between Denway Motors Ltd. and Japan's Honda Motor Co. .

Last year, Passat was the market leader in the full-sized sedan segment with a 49% share, while Accord had a 28% share, figures from the Automotive Resources Asia Ltd. showed.

Shanghai Volkswagen Monday launched new Passat models with added features that increase the value of the models by around 10%, but at lower prices compared with the old models.

The statement didn't mention a price reduction, but a comparison of its 1.8 liter manual transmission model shows that the new version is about 5% cheaper than the previous model, absent the additional features.

Xu Yongkang, an official at SAIC-Volkswagen Sales Co., said the upgrading and price adjustments were in response to customers' demands.

The new Passat models will have leather interior as the standard interior. Some models will have a sunroof, a park distance control that audibly indicates when the driver is near an object, and an electronic stability program, which enhances overall vehicle control.

Its high-end 2.8V AT model with all the new features is being sold at CNY329, 000, 6% less than the old model that was being sold at CNY350,000 in Beijing.

Henry Wu, an analyst at UBS Warburg (News - Websites), said Shanghai Volkswagen was forced to reduce its prices due to weak unit sales following Guangzhou Honda's price cut.

It will be interesting to see, he added, whether Shanghai Volkswagen will reduce the prices of its other models to maintain its sales momentum.

Auto sales in the high-end segment increased between 20% and 30% last year, said Automotive Resources Asia. Cars priced under 100,000 yuan ($1=CNY8.28) accounted for much of the growth, with sales of mini cars rising 90% and subcompacts rising 95%.

Automotive Resources said the slower growth in the high-end segment was due to a lack of price cuts.

China's car market is one of the fastest growing in the world thanks to rising income, relatively affordable prices and easier financing, and more than 1 million cars were sold in China last year, the first time sales have broken that mark.

Analysts expect China to overtake Germany as the world's third largest vehicle market by 2007 or 2008.

The China Association of Automobile Manufacturers expects sales of domestically-produced passenger cars to reach between 1.4 million and 1.5 million units this year.