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Volkswagen to develop budget SUVs, MPVs in China

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[SHANGHAI] Volkswagen is scrambling to develop budget sports utility vehicles (SUVs) and multi-purpose vehicles (MPVs) in China in a bid to keep up with shifts in the market, its China chief executive, Jochem Heizmann, said on Sunday.

MrHeizmann told reporters that the firm's struggle to keep up with the pace of growth in China's passenger car market in the first quarter was in part caused by its lack of budget-priced SUVs and MPVs. "The biggest increase in volume was in budget SUV and MPV segments, where we are not in," he said.

Retail sales of SUVs in China soared more than a third last year to 3.82 million, and have more than doubled since 2012, rapidly outpacing growth in other segments, according to the China Passenger Car Association (CPCA).

Nomura forecasts around 5.2 million SUVs to hit the China market this year, up 27 per cent compared to last year. Sedans, by contrast, are expected to rise just 1 per cent to 12.5 million.

Speaking ahead of the Shanghai Auto Show starting on Monday, Mr Heizmann said the Volkswagen Group has "concrete projects" to address the issue. "We are working hard," he added. "We are talking about a product family there. We are not taking about one or two cars," he said.

Mr Heizmann said Volkswagen needed not only to build new plants and boost its manufacturing capability in China, but also become more responsive to the market. "We don't have the flexibility to integrate new models without directly losing capacity," he said. "We don't have the flexibility to react to seasonal effects. We don't have the flexibility to deal with life cycles of cars." Mr Heizmann said that China's overall passenger car market grew 15 per cent year on year in the first quarter of 2015, citing the firm's own figures.