Beijing - Volkswagen AG on Thursday said it will build three new plants in China in an ambitious expansion program aimed at stemming an erosion of its leading market share in the booming auto sector.
The German company will build a new auto plant and two new engine factories, with construction of the car plant in Lingang south of Shanghai set to begin next week.
The €200 million (R1.6 billion) first phase of the project will have annual capacity of 150 000 vehicles and 300 000 in the second phase, Folker Weissgerber, member of the board of management with responsibility for China, told reporters.
Volkswagen will also build an engine plant in Lingang and is waiting for final approval for a project involving investment of €250 million and annual capacity of 300 000 units.
Approval is also pending for a plant to be built in Dalian, on China's northeast coast, which will have a similar capacity and will see investment of €290 million.
Aggressive expansion by the likes of General Motors and Ford has eaten into the dominant position Volkswagen has enjoyed in China, with its market share falling to around 26 percent in the first quarter.
In 2003 Volkswagen had a 30.8 percent share of the China market, with car sales rising 36 percent to 697 000 units from 513 000 in 2002.
Despite the market's hefty growth rates, Weissgerber said that Volkswagen's sales in the "first few months" were up only three percent.
"This is because in Shanghai and with (northeast China joint venture partner) First Automotive Works, we have already reached the limit of our capacity," Weissgerber said at AutoChina, the country's flagship motor show.
"That's why we have started very quickly to expand our capacity."
He said that the Dalian plant will be part of the First Automotive Works joint venture, while the Shanghai factories will be built in cooperation with its other major Chinese partner, Shanghai Automotive Industry.
The company is targeting a capacity increase to 1.6 million vehicles by 2008 from the current 750 000-800 000, part of an expansion costing €5.3 billion at current exchange rates. - AFP