VW Said to Favor FAW for Budget-Brand Project in China

Volkswagen AG, Europe’s largest carmaker, plans to produce cars for a planned budget brand in China with joint-venture partner FAW Car Co., two people familiar with the matter said.

VW aims to introduce the new low-cost marque in the world’s largest auto market in about three years and may eventually expand it to more than one model, said the people, who asked not to be identified discussing the talks.

Growth in China is crucial to VW’s goal of leapfrogging General Motors Co. and Toyota Motor Corp. to become the world’s No. 1 automaker by 2018. China, VW’s top sales region, accounted for 31 percent of the German automaker’s 9.21 million deliveries last year. VW operates a second joint-venture with SAIC Motor Corp., China’s biggest car manufacturer.

“We want to bring a true budget car to the market in China in the foreseeable future - a particularly affordable entry-level model for 6,000 euros ($7,785) to 7,000 euros,” Chief Executive Officer Martin Winterkorn said at the Wolfsburg, Germany-based company’s annual meeting last month.

Eric Felber, a VW spokesman, said in a telephone interview there’s nothing to report beyond the CEO’s April comments. Li Pengcheng, a spokesman for the joint venture between FAW and VW, said the organization had nothing to announce.

VW’s rising deliveries in China, where it plans to build seven new factories, has helped the automaker cushion declining demand in Europe. VW is working to counter the market downturn in its home region by rolling out 60 new and updated models this year, including fresh versions of the Golf hatchback, Audi A3 compact and the Skoda Octavia family car.

VW’s planned budget cars will compete with Chinese ventures by other global automakers like GM’s Baojun brand as well as local manufacturers like Great Wall Motor Co.

Volkswagen agreed last November to extend its joint venture with FAW beyond 2016 and expand its product range. The joint venture started production of the Jetta model in the northeastern Chinese city of Changchun in 1991.

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