Volkswagen group holds an 18.4 percent share in western Europe, but it is even more dominant in China with nearly half of a booming passenger car market.
Volkswagen's car sales in China jumped 42.8 percent last year to 513,000 units and VW expects 600,000 sales this year. But because overall passenger car sales grew an astounding 53 percent to 1.1 million in 2002, VW's overall share slipped slightly to 46.7 percent.
VW owes its dominant position to both early commitment - its first contact was in 1978 - and patience with slow-moving Chinese bureaucrats. It took until 1984 to create VW's first 50-50 joint venture, Shanghai Volkswagen Automotive, for example.
By last year, the company's 12,300 employees produced 302,000 units, ranging from the aging Santana sedan and Variant station wagon to the modern Santana 2000, Passat and Polo.
VW's second Chinese joint venture, First Auto Works - Volkswagen (FAW-VW), was created in 1990 and opened in 1991 in Changchun, in northern China. VW owns 30 percent and subsidiary Audi another 10 percent of the venture. With an installed capacity of 300,00 units annually and 6,600 employees, FAW-VW built 208,000 cars last year: a combination of an old VW Jetta model and the new VW Bora and Audi A6.
To match growing competition, VW will introduce five new models this year. Four are already on sale: the VW Golf and Audi A4 from FAW-VW and the Polo sedan and Gol. It will start importing the Touran minivan this year.
In addition, VW is aggressively slashing prices, accelerating a vicious price war among Chinese automakers. Last month, Shanghai Volkswagen reduced prices of the Passat by E2,400 to E3,600 - responding to E1,200 to E2,400 price cuts on the Bora from FAW-VW.
Other competitors followed VW's move. Citroen introduced the Elysee SX16V, a sedan version of the ZX Fukang, at E1,000 cheaper than the original model launched in June 2002. Nanjing Fiat cut Palio and Siena prices by E600 to E840.
"These price cuts are a response to mounting competition from other new and cheaper models" launched this year, said Jia Xinguang, an analyst for China National Automotive Industry Consulting and Development. The new, cheaper models include the Accord from Guangzhou Honda and the Regal from Shanghai General Motors.
Qie Xiaogang, an executive from the Beijing Asian Games Village Auto Exchange, predicted prices will fall 10 percent this year.