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VW makes China a base for exports

/ Source: Financial Times

Volkswagen has announced that it will make cars in China for sale in Australia, a milestone for Europe’s largest carmaker which has long aimed to shave its costs on the mainland enough to make the country an export base.

The initial production of right-hand-drive versions of the Polo models destined for Australia will be tiny, about 600 next year, but its symbolic significance goes beyond the number.

“This first batch is just a test, but we hope there will be many more,” said Dr Folker Weissgerber, a member of VW’s management board.

Chinese carmakers and their foreign partners have barely considered exporting cars until recently, because costs and quality were not internationally competitive and the local market was growing quickly.

Dr Weissgerber said on Friday that some of VW’s Chinese joint ventures, which once produced cars at higher costs than even those in Germany, could now manufacture competitively enough to sell in Australia.

The Polo sells for Rmb120,000 ($14,500) in China and will be priced similarly in Australia, where tariffs for cars have been slashed over the last decade.

VW also sees political benefits in the decision, bringing in reporters from around the country for the announcement at one of its Shanghai plants to ensure it received wide publicity.

“This is important announcement for the growth of our international competitiveness,” said Hu Maoyuan, president of the Shanghai Automotive Industry Corp, VW’s partner.

“And I hope [this plant] will become a major export base for Asia and the Pacific in the future.”

The announcement says the Polos would be the “first cars made in China exported to a developed country ... and with steering wheels on the right.” (China’s cars have theirs on the left.)

China exports few vehicles at the moment. In 2002, it exported about 43,000 units out of production of more than 3 million, and half of them were for leisure, such as golf carts and snowmobiles.

China’s vehicle production this year is expected to top 4 million, with sedans reaching nearly 2 million, about 70 percent up from 2002.

VW’s joint ventures have about a third of the Chinese market, down from more than 50 per cent two years ago. It aims to double production in the country to 1.6 million units in five years.