Shanghai Volkswagen is preparing to launch a moderately priced, compact model in the mainland and may cut prices on other models later this year. The move was prompted by import tariff cuts that came into effect on January 1, following China's entry into the World Trade Organisation. 'To remain competitive, Volkswagen must consider cutting the price of its automobiles and taking other action aimed at keeping its market share,' said Cai Bing, a manager at SAIC Volkswagen Sales. Mr Cai said the German-Chinese joint venture would start selling its first compact model in China in April. He said the Polo 'will be priced between 120,000 yuan [about HK$112,440] and 150,000 yuan per unit'. Mr Cai added that 'more and more middle-class Chinese families can now afford to buy compacts, and this price level is aimed at tapping that market'. China has pledged to cut import tariffs on cars in the first half of the decade, and this month cut the duty on foreign-made passenger cars by about 10 per cent. That action prompted Tianjin Xiali to cut prices of some models, and other domestic car-makers may follow suit. Mr Cai said 'cheaper imports and domestic auto price cuts are placing great pressure on us to similarly make our products cheaper'. However, for the time being Volkswagen was extending only a conditional rebate offer, he said. The offer states that if Shanghai VW cuts its list price on the Santana model this year, the reduction will be retroactively extended to those who bought a Santana after January 1. The conditional rebate offer 'is aimed at persuading consumers who have adopted a wait-and-see attitude to buy now', Mr Cai said. Xiao Guopu, general manager of SAIC Volkswagen, was quoted in Shanghai Daily as saying Volkswagen could cut prices on some models in March, when the price of imported and domestic cars stabilised. Mr Xiao said 'the sharp tariff cut will likely trigger an influx of overseas vehicles and intensify the already cut-throat competition', the newspaper reported. He said Volkswagen would initially respond to the competition with new and high-quality models, as well as better service. Mr Cai said the company would 'keep a close eye on the price cuts introduced by domestic car-makers, along with the consumer response to lower prices'. Shanghai Daily said sales of Santana and Passat models rose almost 10 per cent to 242,000 units last year, compared with the year before, and accounted for a 34.57 per cent share of the domestic market for passenger cars.