Following buoyant sales, China's auto sector registered a sharp rebound in profits for 2006, according to industry reports, although the breakneck pace is set to slow this year.

 

Industry-wide profits, covering vehicles, engines, spare parts and motorcycles, leapt by 46 percent to 76.8 billion yuan (US$9.9 billion) last year, according to statistics from the China Association of Automobile Manufacturers.

 

This robust growth topped most estimates, which had predicted a yearly profit margin of around 20 percent.

 

A strong overall performance last year came following a two-year torpor due to slowing sales, rising costs and heated price wars in the domestic car market. Profits first decreased by 5.2 percent in 2004 before seeing a 24.3 percent plummet the following year.

 

Vehicle manufacturing, the main profit branch for the auto sector, earned 34.2 billion yuan (US$4.4 billion) last year, a surge of 47.7 percent, according to the year-end report.

 

Song Bingshen, an analyst with CITIC China Securities Co, attributed the hefty profits to a marked increase in vehicle sales and the record introduction of new models.

 

Sales of China-made vehicles climbed 25 percent to reach 7.22 million units last year, enabling the country to leapfrog Japan and become the world's second-largest vehicle market. The increase was up from 13.5 percent in 2005. 

 

"Car price cuts failed to squeeze profits last year as most reductions were on older models," Song said. "Carmakers launched many new products, which contributed significantly to their sales," Song said.

 

However, analysts anticipate a downturn in profits this year as car sales slow down and prices are reduced.

 

Song said the industry should post a profit growth of 15 percent this year, while vehicle sales are expected to rise by 20 percent.

 

Hua Xue, president of cheshi.com.cn, a Beijing-based website for online car sales and price tracking nationwide, speculated that prices would fall by over 6 percent this year.

 

"Many carmakers have set lofty sales goals this year inspired by last year's strong performance," Hua said. "But the market will not grow as fast as they expect. They will have to cut prices, especially in the low and medium segment, to achieve their targets," he said.

 

(China Daily February 7, 2007)