To deal with the expected profit drop, Volkswagen has announced that it will ask its joint ventures in China to cut their cost by 4.1 billion yuan (500 million US dollars) by the end of 2005.

Last week, Chief Financial Officer Hans-Dieter Poetsch of Volkswagen 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, "explained Yang Qing, 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 percent 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 thedrop in profits," said Yang. As some auto parts of Volkswagen are purchased in the international market, with the mounting exchange rates between Chinese RMB and euro, the production costs have beenrising.

To retain the profit, Volkswagen has carried out a "ForMotion" project worldwide to promote the cost saving. Part of the plan iscutting costs in China.

Also during the first half, General Motors' mainland operations,Volkswagen's main rival in China, reported the sales of 260,000 vehicles, an increase of 57.6 percent year on year.

Being satisfied with the company's operation, Phil Murtaugh, Chairman and CEO of GM China said he is confident of the GM's performance in the second half of the year.

Source: Xinhua