SHANGHAI -- Volkswagen's car sales in China fell 6 percent in 2004 and will fare little better in 2005 amid a raging price war and worsening demand from a slowing economy, executives for its two ventures in the country said on Tuesday.
Volkswagen, which counts China as its largest market outside Germany, lagged by far a nationwide market that had been expected to grow 10 to 15 percent in 2004, analysts said.
The German giant, once China's undisputed leader, fell short of predictions of a slight rise in sales. Its lackluster performance points to diminishing market share as Japanese players from Toyota to Nissan move in on its turf.
"Volkswagen is losing its market share" rapidly, said Henry Wu, an analyst at UBS. "Both Volkswagen's ventures in China are not doing very well, but Japanese companies are growing their market share very strongly."
Global automakers are investing over $13 billion in China to triple annual production to about six million cars by 2010.
But executives and analysts say demand -- wrecked in part by Beijing's clampdown on easy car loans -- may not begin to recover until the second half of 2005 at the earliest as customers look forward to more price cuts and greater ease of imports in 2005.
"Momentum has only been single-digit growth in recent months. Without more price cuts, we will not likely see double-digit growth again," said Wu.
Volkswagen two main ventures in China -- in commercial hub Shanghai and the cold northeastern city of Changchun -- sold about 655,000 units in 2004, after surging 36 percent to 698,000 units in 2003, executives told Reuters.
"It was a difficult year, and this year is likely to be no less hard," an executive at the Changchun venture said. "People are waiting for more price cuts and are holding back purchases."
That plant -- a partnership with First Automotive Works -- saw sales edge up 0.7 percent to 300,118 cars in 2004.
But sales at Shanghai Volkswagen -- a venture with state giant Shanghai Automotive Industry Corp. -- dropped more than 10 percent to 355,000 units compared with 396,000 sold in 2003.
"China's car market has slowed since the beginning of last year, and people are still waiting to see when it will pick up," an executive at Shanghai Volkswagen told Reuters. "Domestic car makers have all been suffering, and we're no exception."
A senior executive told Reuters in November that the plant had been expecting to sell about 360,000 vehicles in 2004.
Data for General Motors, which has been closing on Volkswagen's commanding lead, is due later this week.
The Detroit giant's sales in the first 10 months of 2004 rose 32 percent to just over 400,000 units -- but that included vehicles from trucks to cars.
Volkswagen's market share slipped to about a quarter from a third in 2004, state media has said, while GM maintained a share of just under a tenth, though the firm argues that if all vehicles are included the German firm's share shrinks to about 13 percent.
In June, Volkswagen cut prices in China by up to 11.7 percent, a month after GM offered 11 percent discounts.
Last month, Nissan Motor Co. Ltd. and a local partner said they would invest $362 million on an engine plant in southern China, a region already home to operations of Honda Motor Co. and Toyota Motor Corp.
Honda's venture with Hong Kong-listed Denway Motors Ltd. sold 202,000 cars in 2004, up 73 percent.
Volkswagen said in July it would shoot for sales growth of 5 to 7 percent, or about 735,000 to 749,000 units, in 2004 -- scaled back from more than 800,000 originally.
It aimed to increase capacity to around 900,000 in 2006 from 700,000 currently. By 2008, it wants to bump that up to 1.6 million units via a 5.3 billion euro ($7.14 billion) investment.