SHANGHAI -- Volkswagen wants to end a discounting battle with General Motors over new-car sales in China.
Shanghai VW says it will not cut prices of its Polo small car any further.
Last month, Shanghai VW cut the price of the Polo small car by more than 9 percent to E120,000 yuan -- E11,700 at current exchange rates.
In June, Shanghai GM sold more cars than Shanghai VW for the first time. Official figures are not published, but sources at both companies confirmed a report that Shanghai VW sold 20,805 units in June compared with Shanghai GM's 24,040 units.
Sales growth in China has slumped dramatically in the last two months, partly because consumers held back on buying a new car in the hope of further reductions.
Analysts had already predicted that further cuts would rekindle a price war in the world's fastest-growing major car market.
Making a statement
In a Chinese language statement, Shanghai VW says the Polo price reductions in June were the last, and pledged to "write the legend of the Polo in China," despite the Polo's price premium of E2,400 against GM's rival Buick Sail .
Shanghai VW blames the cost of high tariffs on the Polo's numerous imported parts. Shanghai GM's Sail small car is priced at E9,300.
Shanghai VW's statement also attempts to control the damage from VW group Chairman Bernd Pischetsrieder's widely-reported remark in June that bringing the Polo to China was the wrong decision because Chinese consumers prefer larger, three-box sedans.
The Polo has always been a problem for VW in China.
In April 2002, the model was launched as a hatchback, ignoring market knowledge that Chinese consumers prefer three-box cars. Sales were poor, so in June last year VW launched a three-box version. Both versions have had lackluster sales.
VW's problems in China don't stop at slumping Polo sales.
Prices on numerous other models made at both Shanghai VW and FAW-VW, the German automaker's joint ventures in China with Shanghai Automotive Industry Corp. and First Auto Works Group, were also cut in mid-June to try to boost sales.
The move came just days after Bernd Leissner, Volkswagen Group China chairman, said VW did not want to engage in price wars just to hold on to market share.
VW's market share in China has continued on its long-term downward trend during 2004. At the start of the year, VW held 33 percent share of a 2.1 million unit market, but its share for the first six months of this year was 24.3 percent of 1.26 million units.
VW sales still climbing
Although VW still sells an increasing number of cars each month, its jump of about 5 percent in the first quarter is far behind average market growth, estimated at almost 45 percent by analysts at Goldman Sachs.
GM has consolidated its position as the China's No. 2 carmaker, growing to 11.6 percent of the market with sales of 259,653 units in the first five months, up from 9.9 percent at the end of last year.