BEIJING, June 6-- One of Volkswagen's two main joint ventures in China has launched an emergency"survival plan" aimed at cutting costs by three billion yuan this year and halting the steady erosion of its once-unassailable market dominance in the country.

Ji Yongliang, spokesman for First Auto Works-Volkswagen in Changchun, said the plan would raise productivity, the level of local content and outsourcing.

The joint venture, whose products include Audi, Golf, Bora and Jetta cars, lost 400 million yuan in the first four months of this year, according to industry sources.

The losses are part of the biggest crisis to hit Volkswagen since it arrived in China in 1985.

In the first quarter, the Changchun plant and VW's other main factory, a joint venture with Shanghai Auto Industry Corp, sold a combined 16,000 vehicles, down more than 20 per cent from the same period last year. Sales last year fell 7.1 per cent year on year to 648,500 cars, the first drop in sales since VW arrived in China.

General Motors, its biggest overseas rival, last Friday reported sales in the first five months of 247,232 vehicles, an increase of 12.4 per cent over the same period last year.

VW's survival plan includes savings of 2.8 billion yuan by cutting expenditure on parts and components, which account for 70 per cent to 80 per cent of a vehicle's cost, mainly by using domestic parts. It aims to raise the local content from 60 per cent to 80 per cent.

The rise of the euro against the yuan has made cutting imports a priority for the company.

Another element of the plan is to cut the work day to two shifts from three while raising productivity levels. The new target for each worker is 29.2 cars a year this year, rising to 37.2 by 2009.

The target for this year is to produce one Jetta in 30 hours, down from the current 35 to 38 hours.

The firm will also cut costs by outsourcing as many services as possible outside its core business. A meal at the five canteens it operates costs an average of 10 yuan per person. The firm will contract out the service, cutting the cost to seven yuan a person. It is also contracting out its logistics division.

For Volkswagen, China is the second-most important market after Germany.

It is planning a counter-attack against rivals such as GM in the form of a new China chief executive, Winfried Vahland, the vice-chairman of VW subsidiary Skoda, who takes up his new post on July 1. Three new senior Chinese executives will join him, two of them from the China operations of rivals Beijing Hyundai and DaimlerChrysler.

Industry analysts say VW has been handicapped by the bitter rivalry between its two Chinese partners, FAW and Shanghai Auto, preventing the purchase of parts and components from the same supplier or selling the vehicles through the same distributor.

The company has also suffered from the proliferation of new manufacturers and new models, which has set off price wars.

"Market share[in China] is important for us, but not at any price," said VW chairman Bernd Pischetsrieder said in March."Because we did not copy our competitors' sales promotion campaigns, loss of market share was inevitable."

(Source: CRI/SCMP)