(Yicai) Sept. 24 -- Volkswagen Group is cutting costs in China to combat declining sales in the highly competitive market where BYD threatens to dethrone it as the top-selling automaker.

Following media reports that the German auto giant plans to lay off workers in China, Volkswagen’s Chinese arm told The Paper that it is continuously improving efficiency and optimizing costs, including labor costs, but declined to disclose how many employees will be affected.

Volkswagen China said it is optimizing costs and improving efficiency across several departments and projects, including direct labor costs and indirect expenses, such as administrative overheads, travel, and training, as the carmaker is facing intense competition in the world’s second-largest auto market.

According to recent media reports, Volkswagen China will let go hundreds of employees as a result of falling sales. Audi, a subsidiary of Wolfsburg-based VW, was also said to plan staff layoffs.

All VW brands introduced performance programs globally last year to boost efficiency by 20 percent by 2026. Volkswagen China is adjusting its organizational structure, enhancing the digitalization of workflows, strengthening cooperation between various brands and departments in the country, and localizing projects.

The VW brand launched its biggest performance program last December, aiming to generate a positive earnings contribution of EUR10 billion (USD11.1 billion) by 2026 and improve its operating return on sales to 6.5 percent. It expects to contribute as much as EUR4 billion (USD4.4 billion) as soon as this year.

The group’s sales in China peaked at 4.23 million units in 2019, accounting for 40 percent of its global total, but have since declined, falling to 3.23 million last year. In the first half of this year, sales fell 7.4 percent to 1.35 million. Meanwhile, new energy vehicle giant BYD grew its sales by 28 percent to 1.6 million, threatening VW’s 40-year reign at the top of China’s auto sales league.

Shenzhen-based BYD is now VW’s main competitor in the Chinese market, according to Ralf Brandstätter, chief executive of Volkswagen China.

The Chinese market is crucial for Volkswagen, which is why the company is accelerating its efforts in the country while closing factories and implementing forced layoffs in the less competitive German market, according to analysts.

Editor: Futura Costaglione