Automakers' profits drop in last two months

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Last updated at: (Beijing Time) Sunday, March 28, 2004

Automakers' profits drop in last two months

Chinese automakers' profits shrank sharply in January and February under an attack from inflating steel costs and falling car prices, according to an industry regulator.

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Chinese automakers' profits shrank sharply in January and February under an attack from inflating steel costs and falling car prices, according to an industry regulator.

The nation's top 13 State-run automakers earned 4.55 billion yuan (US$549.52 million) in profit during the period, down 710 million yuan (US$85.75 million) or 13.4 per cent from a year ago, statistics from the State-owned-Assets Supervision and Administration Commission indicate.

The commission attributed the profit decline largely to climbing core-business costs for automakers, mainly from hot steel prices.

Core-business costs rose by 7 per cent year-on-year during this period, according to the statistics.

Their core-business turnover during the period stood at 62.34 billion (US$7.53 billion), an increase of 5.2 per cent over last year.

Steel prices have been on an upward trend since last year as a result of strong demand and mounting raw material costs, such as iron ore and coking coal.

The commission said tumbling car prices on the domestic market are also weakening automakers' profit-making capabilities.

Manufacturers have to cut prices to struggle for market share and to deal with pressures from cheaper imported vehicles as a result of China's tariff slash and expected removal of import quotas.

Analysts predict domestic car prices will decline by more than 10 per cent on average this year.

China's tariffs on vehicle imports will decline to 30 per cent next year from 34.2-37.6 per cent this year according to its commitment to the World Trade Organization.

"This is the first slump in automakers' profits seen in the last two years, but conditions will improve with an expected unit sales increase in the coming months from relatively low levels in January and February," said Zhu Yiping, an official from the China Association of Automobile Manufacturers.

Sales of new vehicles made in China totalled 734,300 units during the first two months of this year, an increase of 23.64 per cent from a year ago.

New passenger car sales during the period surged by 36.09 per cent year-on-year to 340,400 units.

"The temporary profit collapse is nothing for automakers in China as they are enjoying steep profit margins," said Jia Xinguang, chief analyst with the China National Automotive Industry Consulting and Development Corp.

The average profit margin for major automakers in China stands at around 20 per cent, compared to 5 per cent in developed nations.

Source: Xinhua

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