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Volkswagen Group Expands Again in China

Clever Chinese industrial policy encourages investment.

by on Sep.14, 2009


The investments are to be financed from the cash flow of the Chinese joint-venture companies.

The Volkswagen Group will continue its expansion in China during the next few years despite uncertainties about the global economy.  Between 2009 and 2011 VW will invest in a total of €4 billion in the world’s largest automotive market to introduce new vehicles and expand its production capacities in China. These investment plans were approved last week by the Supervisory Board of Volkswagen Aktiengesellschaft.

The expansion will be financed from the cash flow of VW Group’s Chinese joint-venture companies, which are required by Chinese industrial policies. The U.S. remains the only industrialized nation in the world without an industrial policy, as job losses continue and unemployment reaches highs not seen since the Great Depression.

At VW’s  Nanjing and Chengdu plants production is to be boosted to 300,000 and 350,000 vehicles respectively by 2012. VW has long been the market leader in China since the Communist party chose it to help set up First Auto Works as the supplier of government vehicles. All of VW’s Chinese plants are joint ventures as required by Chinese law.

“For the Volkswagen Group, China is one of the most important markets in the world. We are already well-positioned there with a broad product portfolio,” said Prof. Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen AG.

“Demand for our models is growing so dramatically that our capacities in China are no longer sufficient. Our investment decision has laid the foundations for continuing the Group’s success in China in the future,” Winterkorn added.

VW is fighting to overtake Toyota as the world’s largest automaker

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Overall, the Wolfsburg-based German automaker saw sales of light vehicles decline 4.4% during the first half of 2009, as its global sales declined 18%. This was a relatively better performance than the overall market, and came in spite of troubles with its Skoda and Seat brands in Europe, notably in Spain and the U.K. VW is fighting with  Toyota and General Motors for the top spot as a global automaker.