Volkswagen is to replace the leadership of its struggling Chinese operations as concerns mount that the business which has propped up the earnings of Europe's largest carmaker in recent years will slip to a heavy loss in 2005.
Winfried Vahland, vice-chairman of VW subsidiary Skoda, will take over at the beginning of July from Folker Weissgerber, the board member responsible for China, whose departure had already been announced, and Bernd Leissner, the head of China, who will retire.
The move coincides with a huge drop in VW sales in China at the start of the year as it saw its market share fall to 11 per cent, down from more than 50 per cent four years ago.
Last month a VW official admitted that it had deep problems in China, as the carmaker said profits there had more than halved to €222m ($287m) in 2004 compared with the previous year. Its Chinese sales fell nearly 70 per cent in the first two months. Officials blamed statistical effects and said the first-quarter decline would be nearer a third.
VW's woes in China come as it battles with problems in other key markets. It lost €1bn last year in the US due to ageing models and the weak dollar, although it expects to narrow the losses there this year. Consumers in its biggest market, Germany, have been reluctant to buy new cars.
Analysts at Goldman Sachs earlier this month forecast that VW would slip to a €411m loss in China this year, causing it to slash earnings-per-share estimates for the parent company by a quarter.
The investment bank estimated as much as two-thirds of earnings per share in 2003 were generated by the country.
"VW's position in China is crumbling," said analyst Keith Hayes. "Margins for all participants are crumbling but we believe VW has the most to lose."
VW has struggled because of an ageing model range and the failure to take off of newer vehicles such as the Golf. Analysts point to a more fundamental lack of investment in healthier times, meaning that VW had gained a bad image when the market was opened.
Asian carmakers led by Hyundai have boosted sales through aggressive pricing.
Mr Vahland joined Czech carmaker Skoda in 2002 after its turnround had already begun but is credited with helping preside over one of the successes of the VW group. Skoda's pre-tax profits nearly doubled last year to Kc4.8bn ($206m) as it exploited its low-cost base in eastern Europe.
