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Volkswagen sees 25% profit rise this year

Volkswagen AG's JV with First Automotive Works Corp (FAW), one of the top Sino foreign car partnerships, expects its 2007 profits to climb by at least a quarter, helped by brisk sales and cost-cutting efforts. 

The venture, FAW Volkswagen, in the northeastern city of Changchun, will have a "minimum" profit growth of 25% this year from 2006, said Joachim Wedler, its vice-president in charge of finance. But Wedler didn't reveal how much the firm - in which FAW holds a 60% stake and Volkswagen 40% - will earn this year. Weiming Soh, the venture's sales chief, said it plans to sell more than 400,000 cars this year, up from 350,000 units last year.

In the first five months, its retail sales jumped by 25.1% year-on-year to 173,218 units, making it No 3 after General Motors' venture with SAIC Motor Corp and Volkswagen's other partnership with SAIC. FAW Volkswagen's June sales are expected to exceed 40,000 units, Soh said.

The company's bold profit and sales projections came amid blistering growth of China's vehicle market. Sales of all China-made vehicles increased by 22% to 3.65 million units from January to May, including 2.12 million passenger cars, according to industry data. In the first four months, combined profits of the top 16 Chinese auto groups reached 18.1 billion yuan, rocketing by 51.3%. Wedler said FAW Volkswagen will use more locally made engines and spare parts to cut costs. “We are shooting for a very high localization rate to have more financial power to beat competition,” he said, without elaborating.

Competition in China's passenger car market has been heating up with price incentives and product launches. Carmakers offered some 50 price cuts in the first five months of this year, according to data from FAW Volkswagen. An Tiecheng, the venture's general manager, said it plans to roll out at least two new models under the Volkswagen and Audi marquis annually in the next five years to woo increasingly sophisticated buyers. Audi is the luxury car unit of Volkswagen. The venture will launch a Volkswagen Magotan large-sized sedan next month. Its current lineup includes Volkswagen's Jetta, Bora, Golf, Sagitar and Caddy as well as Audi A6 and A4. (people.com.cn)