Volkswagen: Halts China investment

Volkswagen AG decided to stop investing in China to expand production.

Volkswagen, which makes passenger cars through two ventures in the country, will try to increase cooperation with partners FAW Group Corp. and Shanghai Automotive Industry Corp., by centralizing purchasing and using more local components to cut product costs by as much as 40 percent, said spokesman Kai Grueber.

Volkswagen, which counts China as its biggest market outside Germany, is seeking to stem the decline in its market share, which fell to 18 percent in the first half, from two- thirds since it started making cars in China in 1985. The company said it will add 10 to 12 new models in China before 2009. The company has scaled back its plans to spend 6 billion euros ($7.2 billion) in the three years to 2006 by 40 percent.

"All areas of the business are being closely scrutinized," Volkswagen's China head Winfried Vahland said Monday. "We are in a transition phase where we are laying foundations preparing ourselves for a more sustainable development of our company in China."

The carmaker will increase locally made content to an average of 90 percent, Grueber said. The company's cars currently have local content ranging between 60 percent and 93 percent. Grueber didn't quantify the estimated savings from increasing the amount of locally made parts.

The company's joint venture with Shanghai Auto will start manufacturing and selling the Skoda brand in 2007, Volkswagen said. Skoda is based in the Czech Republic. Volkswagen will begin selling the Octavia model in China.