VW China recovery plan on track

By Ben Blanchard and Jack Reerink

BEIJING (Reuters) - Germany's Volkswagen AG (VOWG.DE: Quote, Profile, Research, Stock Buzz), the world's fourth-biggest car maker, is on track with its China recovery plan, but higher prices at the pump and interest rate hikes could spoil the party.

Winfried Vahland, president and CEO of Volkswagen (China) Investment Co Ltd, said at the Reuters China Century Summit that the company was confident of selling more than 600,000 cars in 2006 in China and that its focus on profitability was paying off.

"For the year 2006 we established three targets -- that we wanted to sell more than in 2005, we wanted to stabilize our market share in China and we wanted to get back into profit," Vahland said. "We will achieve these three targets this year."

After booking an operating loss of 119 million euros ($151.5 million) in 2005 from its China venture stakes, Vahland now predicted he could better the 37 million euro first-half profit in the second half.

"The second half of the year will be better than the first half," said Vahland, who took his current position in July 2005

Volkswagen racked up a 29.5 percent sales gain to 459,000 through August, reversing an 11.7 percent drop to 572,000 in 2005 as competition intensified and Beijing cracked down on easy auto credit.

In a sign of confidence, Vahland said Volkswagen would introduce 12-14 new models by the decade's end, up from an earlier target of 10-12.

But he warned that industry sales in the second half may slow because of a renewed central government focus to rein in lending and cool an economy that grew a blistering 10.9 percent in the first six months.  Continued...