China Auto Market Booming - Shanghai Volkswagen Considers Outsourcing Santana Model Manufacturing

SHANGHAI May 29, 2003; Dow Jones reported that Shanghai Volkswagen, a joint venture between Volkswagen AG and Shanghai Automotive Industry (Group) Co., plans to contract a domestic carmaker to help manufacture some its best-selling Santana sedans to supplement its existing capacity.

"We're still doing the feasibility study...We will make the decision by the end of the year," a Shanghai Volkswagen spokesman said, adding that the contract manufacturer will handle one production line.

If it goes ahead with its outsourcing plan, Shanghai Volkswagen will consider the potential partner's production quality and employees' skills, among other things, before making a final selection.

While he declined to say which companies are being considered, a report in the Shanghai Daily said SAIC Yizheng Automotive Co., a unit of Shanghai Automotive Industry, is likely to get the contract.

"SAIC Yizheng is one of the choices, but we are still considering other sites, " said Xue Hao, director assistant to SAIC's president.

Shanghai Volkswagen has three car and two engine production facilities on the outskirts of Shanghai. The facilities have a combined annual production capacity of 400,000 cars and engines.

In the first four months of the year, Shanghai Volkswagen produced 132,011 cars and sold 128,214 cars, up around 80% from the same period last year.

In April, it produced and sold 32,200 cars, up 6% from March.

China's car market is one of the fastest growing in the world thanks to rising incomes, relatively affordable prices and easier financing.

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