The profits plunge in the domestic auto sector continued in the first quarter as sales sagged, prices were slashed and costs surged, according to the National Bureau of Statistics.

Total profits stood at 7.64 billion yuan (US$922.7 million) in the first quarter, down a massive 58.5 per cent from a year ago, said Jiang Yuan, an auto analyst at the bureau.

This was the third consecutive quarterly decline since the third quarter of last year, Jiang said.

The sector's profits dived by 61.5 per cent year-on-year to 3.5 billion yuan (US$422.7 million) in the first two months of this year.

More than 100 producers of cars, trucks and buses in China reported 2.9 billion yuan (US$350.2 million) in profits in the first quarter of this year, sliding 75.4 per cent on last year, he said.

Profits in the auto components segment declined by 28.2 per cent year-on-year to 4.05 billion yuan (US$489.1 million) from January to March.

Jiang attributed the slump to sluggish sales and fierce price wars.

Sales of domestically-made automobiles fell by 1.16 per cent to 1.27 million units in the first quarter of this year from the same period of 2004.

"Customers appear not to be very sensitive to manufacturers' frequent price cuts and new products," Jiang told China Daily.

Chery Automobile in East China's Anhui Province slashed prices of its Qiyun, Fengyun and Oriental Sun sedans by 4,000 yuan (US$483) on Sunday, making it the latest car maker in the nation offering substantial markdowns.

"A full-year sharp decline in the auto sector's profits will be inevitable in 2005, although conditions may get a little bit better with a small rebound in vehicle sales during the second half of the year," he said.

Many automakers will remain in the red this year, he added.

Jinbei Automobile Co Ltd, the Shanghai-listed van maker, forecast first half losses at the end of last month.

The company in Northeast China's Liaoning Province reported losses of 0.07 yuan (0.86 US cents) per share in the first quarter of this year.

Tianjin FAW Xiali Automobile Co Ltd, the Shenzhen-listed partner of Japan's Toyota Motor Corp, made losses of 40.89 million yuan (US$4.94 million) in the period.

Jiang said that high costs of materials, such as steel, are also eroding automakers' profits.

Domestic steel prices increased by about 10 per cent at the end of March from the beginning of this year, according to the China Iron and Steel Association.

Analysts from securities firms predict the average profit margin of automakers in China will fall to less than 6 per cent this year, from almost 7 per cent in 2004.

"However, the profit plunge is not a totally bad thing as it will both drive some manufacturers to axe new production capacity to ease the domestic market glut and speed up the reshuffling of the fragmented auto sector," Jiang said.

Total vehicle demand in China is widely predicted to grow by 12 per cent to 5.6 million units this year with car orders climbing by 15 per cent to 2.6 million units.

(China Daily May 12, 2005)