SHANGHAI, Aug. 7 -- SHANGHAI Volkswagen said yesterday it will offer up to a seven-percent discount on the complete line of its best-selling Passat Lingyu series to offset the competitive challenge from its home rival's Magotan.

The flagship joint venture between Volkswagen AG and Shanghai Automotive Industry Corp provided price discounts ranging from 7,000 yuan (US$921) to 16,000 yuan, on the Passat Lingyu starting yesterday.

The biggest cuts were offered on the mainstream 1.8T model with a manual transmission, which now sells for 199,800 yuan. The lowest price for a Lingyu dipped to 176,800 yuan.

"The price discounts directly target FAW Volkswagen's Magotan, as both models have an overlapping price range," said Jiang Xueqin, an auto analyst at Shenyin Wanguo Securities Co Ltd.

The German car maker's other Chinese venture, FAW Volkswagen, launched the Magotan a month ago. The mid-to-high-range sedan is part of a revamped Passat series and sells for 192,800 yuan to 249,800 yuan in China.

When the model debuted in a class that includes Toyota's Camry and Honda's Accord, dealers offered discounts of about 20,000 yuan to enhance the Lingyu's price advantage.

Rao Da, secretary-general of the Union of Passenger Car Market and Information, said Lingyu sales were affected over the past month. Shanghai Volkswagen sold around 8,700 Lingyus in July, close to the average monthly level during the first six months.

"Shanghai Volkswagen's profit is not expected to suffer much as the discounts will help boost sales ahead of the prime September season," Shenyin Wanguo's Jiang said.

Chinese car makers' margins have tailed off as they cut prices to boost sales. The average profit margin for domestic auto makers was 3.1 percent last year, compared with nine percent in 2003.

Volkswagen, the biggest overseas car maker in China, expects to increase vehicle sales 12 percent this year to 800,000 units.

Japan's Honda Motor Corp trimmed the price of its Accord sedan by at least 20,000 yuan in August, banking on a sales pickup of more than 20 percent to 400,000 units.