April 19, 2015 / 3:58 AM / 2 years ago

Volkswagen exploring new budget models for China: exec

A man unveils a Volkswagen car during the International Sao Paulo Motor Show media day in Sao Paulo October 28, 2014.Paulo Whitaker (BRAZIL - Tags: TRANSPORT BUSINESS LOGO)

SHANGHAI (Reuters) - Volkswagen (VOWG_p.DE) is exploring the possibility of developing 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.

Heizmann 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 percent compared to last year. Sedans, by contrast, are expected to rise just 1 percent to 12.5 million.

Speaking ahead of the Shanghai Auto Show starting on Monday, 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.

Volkswagen said the specific new projects were currently at an exploratory stage and had not yet been confirmed.

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."

He said the firm had not yet ruled out acquiring existing plants in order to expand its production capacity in China more quickly.

Heizmann said that China's overall passenger car market grew 15 percent year on year in the first quarter of 2015, citing the firm's own figures.

Writing by David Stanway; Editing by Jeremy Laurence

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