Profits in China's auto sector slumped by more than half in the first four months of this year due to sluggish sales, tumbling vehicle prices and mounting costs, according to an industry organization.

The sector, including vehicles, engines, spare parts and motorcycles, reported 12 billion yuan (US$1.45 billion) in profits in the period, down 57 per cent from a year earlier, showed statistics from the China Association of Automobile Manufacturers.

Profits in the vehicle-making segment slid by 74 per cent year-on-year to 4.36 billion yuan (US$526.5 million) in the period.

The whole sector's profit margin declined to less than 4 per cent from January to April this year from some 9 per cent last year, said Zhu Yiping, spokeswoman of the auto association.

"The sharp profit decrease mainly resulted from persistently dormant vehicle sales," Zhu told China Daily yesterday.

Total sales of vehicles made in China grew by only 4.57 per cent year-on-year to 2.27 million units in the first five months of this year.

The growth was up from 1.57 per cent in the first four months and down from 15 per cent last year.

Among the nation's 15 key State-owned auto groups, seven experienced profit plunges from January to April this year, including Shanghai Automotive Industry Corp (SAIC), Dongfeng Motor Corp, Guangzhou Automobile Group, Beijing Automotive Industry Holdings Corp, Chang'an Motor Corp, Jiangling Motor Corp and Qingling Motor Corp, Zhu said.

The profits of SAIC tumbled by 76 per cent year-on-year to 2.1 billion yuan (US$253.6 million) in the period.

Its car joint venture with Germany's Volkswagen reported an 80 per cent plunge in profits in the period.

SAIC's vehicles sales declined by 16 per cent to 317,800 units in the first five months of this year from a year earlier.

Five key auto groups - First Automotive Works Corp (FAW), Nanjing Automobile Corp, Jinbei Automobile Corp, Changhe Automobile Corp and Southeast Motor Corp - suffered losses in the first four months of this year, she said.

Sales of FAW, China's No 1 vehicle producer, fell by 5.9 per cent year-on-year to 374,500 units in the first five months of this year.

Only three key auto groups saw profit growth in the first four months of this year, including China National Heavy-Duty Truck Corp, Jianghuai Automobile Corp and Hafei Automobile Corp, she said.

Analysts said declining car prices also contributed to the sector's profit slump.

Average car prices in Beijing, Shanghai, Guangzhou, Shenzhen and Wuhan tumbled by some 12 per cent from January to May this year from a year ago, according to a survey by Cheshi.com.cn, a Beijing-based website conducting on-line auto sales.

"Car prices in the second half of this year are expected to decline slightly from the first half as many producers plan to cut production to stabilize their products' rates," said Hua Xue, chief executive officer of the website.

"Hot price wars, which occurred last year, will not be repeated this year because they did great harm to automakers' profits," Hua said.

The whole auto sector's profits dropped by 6 per cent to 72 billion yuan (US$8.7 billion) last year from 2003.

Analysts said the rising costs of steel and rubber are eating up profits in the auto spare parts segment.

Zhu said sales of automobiles made in China are expected to reach 2.8 million units in the first half of this year.

The auto association predicted previously that China's total auto demand will increase by 12 per cent to 5.6 million units this year from 2004.

Sales of domestically-made passenger vehicles grew by 3.63 per cent year-on-year to 1.47 million units in the first five months of this year, according to statistics.

The figure included 969,300 cars, 57,100 multi-purpose vehicles, 65,400 sport utility vehicles and 374,100 mini vans.

(China Daily June 14, 2005)