VW's Shanghai venture slashes car prices

SHANGHAI August 9, 2005; Reuters reported that the larger of Volkswagen's two China auto-making ventures has slashed prices on some cars by up to 13.7 percent as it tries to fend off intense competition in the world's third-largest vehicle market.

Volkswagen A.G., which had a market share of a quarter at the end of last year that analysts say could soon slip to 15 percent, is trying to regain ground lost to rivals like General Motors Corp. and Hyundai Motor Co. Ltd.

Prices on four popular models, including the Gol hatchback and Passat sedan, have been cut by between six and 13.7 percent from Aug. 8, Shanghai Volkswagen said in a statement posted on its Web site (www.csvw.com) late on Monday.

Analysts said the move could rekindle a price war, which would weigh on the sector's already wafer-thin profit margins.

"Volkswagen has a big influence on the market. The fact that they are cutting prices could put pressure on other similar products," said analyst Zhang Xin at Guotai Junan Securities.

"I think the price war will reach a peak in September, which is a hot month for car sales."

Once a profit machine, China has become one of the car industry's most intense battlefields, prompting firms to slash prices and launch new models to appeal to a growing class of newly rich Chinese keen to get behind the wheel.

After a brutal year of slowing growth, auto makers clocked their fastest pace of sales growth in at least a year in June. GM and Toyota Motor Corp. have raised their full-year targets and industry executives predict a second-half rebound.

Shanghai Volkswagen and FAW-Volkswagen, the German auto maker's other venture based in the northern city of Changchun, said in July they maintained their lead in China with an 18 percent share of overall sales in the first half of 2005.

But analysts warn that saturation among wealthier Chinese will skew growth toward smaller, low-budget cars, helping Asian firms such as Honda Motor Corp and domestic players including Geely Automobile Holdings Ltd.