Beijing - No car market is growing faster than China's, and nowhere is the competition tougher. "China is currently the hottest embattled car market in the world," said Winfried Vahland, Volkswagen boss in China.
Only the US car market is larger, but three times more manufacturers in China offer almost twice as many car brands than in the United States and are competing for consumers.
"China's car market is characterized by low brand loyalty and first-time buyers," Vahland said.
A manufacturer who wants to succeed in the country has to offer a "strong brand" and "lightning-fast" marketing to quickly react to consumers' wishes, he added.
And business is booming - sedan sales have increased by 26 per cent in the first half of 2007 compared to the same period last year.
The market is dominated by foreign brands, which account for about two-thirds of all sales.
But China's domestic car-manufacturing industry intends to close the gap. However, efforts by Chinese manufacturers like Chery or Brilliance to gain a foothold in Europe and the US have failed badly.
Devastating crash test results of Brilliance's BS6 limousine in Germany or equally miserable results scored by Chery's Amulet sedan in Russia have prompted critics to mock those cars as "China Crashers".
Chery nevertheless recently signed a cooperation agreement with Chrysler to manufacture cheap city cars under the Dodge brand for the US market.
Brilliance, meanwhile, is undertaking efforts to fulfil higher safety standards.
Nobody doubts that China's car industry will achieve the export quality of its products. The only question is when that stage will have been reached.
"We will likely see similar development like in vehicles from Japanese or South Korean manufacturer, but in China this development is probably going to happen faster," said Vahland.
"It may take as little as five to 10 years until Chinese cars can be found in great numbers in Europe or the US," he said.
But in order to gain this foothold, Chinese car makers first have to create international management teams and, furthermore, study the quality, design and service standards of different European car brands to adjust their own products accordingly.
Until this has happened, China's largest export markets will remain Russia, Kazakhstan and Iran.
To consolidate its fractured car industry, China's government intends to create a few manufacturing giants who will be able to cope marketing-wise with international conglomerates.
China's currently largest car maker Shanghai Automotive Industry Corp. (SAIC), which already maintains joint ventures with Volkswagen and General Motors, has already begun negotiations with Nanjing Automobile Corp. (NAC) about a merger, although the outcome of these negotiations remains uncertain at this stage.
Beijing also encourages further development of domestic car brands. Honda is the first foreign car maker which aims to developa new car brand together with its Chinese partner company Guangzhouch Automobile Group by 2010, the company announced recently.
The first cars of this new brand will however still be based on existing Honda models and are projected to be priced at under 80,000 yuan (10,610 dollars) per vehicle.
This lower market segment is also occupied by Volkswagen's Jetta, which until now has been the most widely sold car model in China, with the car's success being explained by reliability and an attractive price.
But with this concept alone, no car maker in China can today remain successful. The market also demands new car modelsparallel to reliability and favourable pricing.
Volkswagen therefore oriented its product strategy on a broad variety of different models and, in fact, introduces two to three new models every year.
After difficult years, the current market leader in China last year recovered by means of this strategy and continues to successfully defend its current market share of 17 per cent against strong competition.
"There continues to be strong price pressure overall," explained Vahland.
But by implementing "drastic cost savings measures", his two Chinese joint ventures have "managed to achieve some margin within (the country's) deflationary market," he added.
Volkswagen expected to conclude 2007 with a sales record of 800,000 vehicles delivered to its customers and a solid profit.
During the first half of the year, the proportional operations result had already more than doubled to 83 million euros compared to the first half of 2006, which yielded 37 million euros.
