After outperforming the market for almost a decade, Volkswagen, the top-selling brand in China, has begun to lose market share.
Through May, the brand's sales dipped 3.7 percent to 1.16 million vehicles. In that same period, industry sales of light vehicles in China rose 5 percent.
Why has VW started to lose ground? China's soft economy is one reason. Economic growth slowed to 7 percent in the first quarter from 7.4 percent last year. But the brand also has itself to blame.
In recent years, Chinese car buyers' preferences have changed significantly. But VW has become less responsive to evolving consumer needs.
Newly prosperous car buyers have migrated in recent years from sedans and microvans to bigger vehicles such as SUVs and multipurpose vehicles. Chinese consumers are especially fond of SUVs' and MPVs' high seat positions and dynamic styling.
Observing this trend, domestic and foreign automakers accelerated the introduction of SUVs in China.
General Motors, Ford Motor Co. and PSA/Peugeot-Citroen each has introduced three locally produced SUV models in China. Local production allowed them to avoid China's hefty 25 percent import tariff.
But VW has not followed suit. The German brand has more than 25 models available in China, but only two -- the Tiguan and Touareg -- are SUVs. And of those, only the Tiguan is produced in China.
China has vast interior regions that are relatively undeveloped, and consumers in these regions need inexpensive cars.
To meet that demand, GM launched the Chevrolet New Sail, a subcompact sedan that sells for less than 60,000 yuan ($9,660). That car has found its niche, with average monthly sales exceeding 10,000.
VW would like an equivalent of the New Sail to win customers in inland China. But apparently because of VW's past success, the company feels no urgent need for such an inexpensive product.
For years, the ancient Santana sedan, with a starting price of 84,900 yuan, was VW's budget car, and fleets of Santana taxis are still a familiar sight in Shanghai. But the carmaker never developed a replacement for it.
The German company played with the idea of designing a new "budget" car, a term VW's management invented in its internal meetings. But the brand has yet to roll out such a vehicle.
VW is still China's largest car brand despite its weak sales so far this year. It still commands more than 14 percent of the country's passenger vehicle market.
But unless the brand can awaken itself to the fast-changing customer needs, it will be only a matter of time before VW loses its market leadership.