MUNICH -- Volkswagen will form a new company with Chinese state-owned automaker FAW Group to improve digital services for its vehicles in China, the German company's biggest market.
The automaker announced on Tuesday that the new company will focus on developing services for "connected cars" -- vehicles equipped with features connected to the internet. The enhanced services will be available for cars manufactured from 2019 onward.
The new company, MOS Intelligent Connectivity Technology, will be established in the inland city of Chengdu by Volkswagen Group China and FAW-Volkswagen. The two makers are investing 1 billion yuan ($150 million) in the company.
Chinese consumers increasingly view internet connectivity as more important than driving performance features.
China's new car sales shrank in 2018 for the first time in 28 years to 28.08 million units, down 2.8% from 2017. Sales of Volkswagen passenger cars fell 2% in 2018 over the same period, a trend the automaker hopes to halt by beefing up its digital services in its most important market.
"Developing digital for our Chinese customers is one of Volkswagen's key focus points," said Stephan Wollenstein, CEO of the Volkswagen brand in China, in a statement. "As we are starting to fully connect our models, so comes the opportunity to enrich our customers' lives with high-quality digital services," he added.
Dong Xiuhui, commercial vice president of FAW-Volkswagen Automotive said, "With the strong support and effective cooperation existing between two companies, both in China and Germany, we will jointly keep pace with digitalization to meet the requirements for our company's strategic presence."
Nikkei staff writer Akihide Anzai in Tokyo contributed to this report.