25% Profit Rise as Seen by Volkswagen

The joint venture of Volkswagen with First Automotive Works Corporation (FAW), which is one of the top Sino-foreign car partnerships, proved to be a good venture as they now expect their 2007 profits to increase by at least a quarter, helped by brisk sales and cost-cutting efforts.

“The venture, FAW Volkswagen, in the northeastern city of Changchun, will have a “minimum” profit growth of 25 percent this year from 2006,” Joachim Wedler said, their vice-president in charge of finance. However, Wedler didn’t disclose how much the firm will earn this year. Volkswagen only holds 40 percent of the firm whilst FAW holds the 60 percent.

Venture’s sales chief Weiming Soh said that it plans on selling more than 400,000 cars this year, which is 50,000 more from last year’s sales.

The first five months gave the firm a good start of the year as their retail sales jumped by 25.1 percent year-on-year to 173,218 units, making it reach the third spot after General Motor’s venture with SAIC Motor Corporation and Volkswagen’s other partnership with SAIC. “FAW Volkswgen’s June sales are expected to exceed 40,000 units,” Soh said.

The bold profit and sales projection of the company came amidst the blistering growth of China’s vehicle market. China-made vehicles’ slaes were up by 22 percent to 3.65 million units from January to May, including 2.12 million passenger cars, based on the industry data. During the first four months, the profits of the combined top 16 Chinese auto groups reached 18.1 billion yuan, increasing by 51.3 percent.

Wedler said that the cost-cutting plan of FAW Volkswagen is to use locally made engines and spare parts. “We are shooting for a very high localization rate to have more financial power to beat competition,” he said.

The competition is China’s passenger car market is going at its peak as companies are coming up with price incentives and product launches. Automakers offered some 50 price cuts in the first five months this year, based from the FAW Volkswagen data.

The venture’s general manager An Tiecheng said that it has plans on rolling out at least two new models under the Volkswagen and Audi makes yearly during the next five years to appeal to the increasing sophisticated buyers .

The venture will introduce a Volkswagen Magotan large-sized sedan next month. Their current line up includes Volkswagen Jetta, Bora, Golf, Sagitar, and Caddy. They also included Audi A6 and A4.