Boosted by buoyant sales, China's auto sector reported a surprisingly sharp
rebound in profits for 2006, according to industry reports, but the pace is
predicted to slow this year.
Combined profits for the industry, including vehicles, engines, spare parts
and motorcycles, jumped by 46 percent to 76.8 billion yuan last year, according
to statistics from the China Association of Automobile Manufacturers.
The robust growth beat the estimates of most analysts, who predicted the
sector's 2006 profits would rise about 20 percent.
Strong overall performance last year came after two consecutive years of
profit decreases due to slowing sales, rising costs and heated price wars in the
domestic car market.
Profits of the sector fell by 24.3 percent in 2005 and 5.2 percent in 2004.
Vehicle manufacturing, the top profit center for the entire auto sector,
earned 34.2 billion yuan 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 last year to stronger-than-expected vehicle sales and record
introduction of new models.
Sales of China-made vehicles climbed 25 percent to 7.22 million units last
year, which enabled the country to surpass Japan as 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 the sector's profit growth this year will
decelerate as a result of slower vehicle sales and bigger price reductions.
Song said the industry is expected to register 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, said prices will fall by more than 6
percent this year.
"Many carmakers have set lofty sales goals this year inspired by strong
performance last year," 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.