Volkswagen cutting costs in China

German auto giant Volkswagen has asked its joint ventures in China to slash costs by $500 million by the end of 2005 to face an expected profit drop due to intense competition, especially from General Motors, the state media reported on Tuesday.

Chief financial officer of Volkswagen, Hans-Dieter Poetsch said that the company would not be able to meet the profit level of last year in China.

"The drop is due to the tough domestic sales environment," said a senior PR officer with Volkswagen China. "It is also related to the currency factor."

Industry figures showed that Volkswagen's sales in China dropped slightly in the first half of this year. The company sold about 310,000 cars, down 4.2 per cent from a year earlier.

Meanwhile, China's auto market is slowing. China's sedan car sales dropped for three consecutive months in the second quarter of 2004, although sales rebounded slightly in July.

"The losses from foreign-exchange rates also contribute to the drop in profits," the Volkswagen PR official said. As some auto parts of Volkswagen are purchased in the international market, with the mounting exchange rates between Chinese Renminbi and euro, the production costs have been rising, the official said.