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GM set to overtake VW
Last Updated(Beijing Time):2005-09-12 09:59

U.S. auto giant General Motors is snapping at the heels of China's biggest car manufacturer Volkswagen which is likely to loose its position as top dog here next year, analysts and industry consultants say.

Over the past four years, as the world's largest car makers have raced into China in hopes of winning a piece of the action in the globe's third largest vehicle market, Volkswagen's market share has slid precipitously.

While the German auto giant is still the leader, its position has been eroded from 40 percent market share in 2001 to less than 15 percent.

This has seen it resort to defensive moves such as price cuts in the hopes of keeping up with the more efficient and modern operations of US-based GM, Japan's Honda and Toyota, and Hyundai of South Korea.

"The situation for Volkswagen is still not good. It can hardly maintain last year's position in the Chinese marketplace," said Qian Xiaoyu, an analyst at United Securities.

"In the last six months its market share has been dropping sharply."

Volkswagen sold 220,774 passenger vehicles in the first half of this year for a 13.6 percent share of the China market but this is forecast to slip to 10 percent over the next three years.

According to Automotive Resource Asia, Volkswagen will cling on to a slight lead in sales volume this year with 360,000 units, followed by GM and Hyundai, both with sales of around 300,000. Honda will be fourth with 230,000.

GM is then expected to take the top spot with a 10.9 percent share for 2006.

"GM are in a better position than Volkswagen in China because of their products and structure in the country," said May Arthapan, a senior analyst at Automotive Resources Asia, a consultancy on the industry.

"They have a better relationship with their partners in China, their products and pricing (are better) ... they are also more responsive to the market than Volkswagen."

A similar sensitivity has resulted in strong sales for Hyundai, Toyota and Honda.

"Hyundai will do very well in China because they have good products and low prices," Arthapan said. "I also see Honda and Toyota doing well in China."

Volkswagen, which 20 years ago ventured into China as the first Western auto manufacturer, was rewarded for its vision with years of near monopoly of the government and taxi market.

But now, with scandals and financial troubles at home and bloated management in China, the company is struggling.

Its slow innovation is evident in that its dominant model on China's streets is the Volkswagen Santana, a 1980s design that has been left virtually unchanged here.

"(Volkswagen) have been quite late in bringing new products into the market and when they have arrived, it has been too little too late," said Arthapan.

Once unchallenged in China's passenger vehicle market, Volkswagen continues to cling to that mantra, saying that 2005 volumes were calculated using wholesale figures that could not be compared to current retail sales data.

Volkswagen AG's joint ventures in China -- Shanghai VW and First Automotive Works VW -- recorded an operating loss of 23 million euros (US$19 million) in the first half of this year compared with a profit of 251 million euros for the same period in 2004.

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

Arthapan argued that Volkswagen's woes are due to its ponderous reaction to China's fast changing market place.

"Now you have very competitive brands like Hyundai and Toyota in the market and I believe Volkswagen are going to lose out further," she said.

Zhang Xin, auto analyst from Guotai Junan Securities, said that the marketing strategies of Volkswagen's two joint ventures meant they were cannibalising each other.

"Car models launched by the two joint ventures sometimes target the same consumer so there is too much competition (between) the two joint ventures," Zhang said.

Source:Shenzhen Daily 
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