Aux Group Co Ltd, China's 20th-largest private company and the third-largest air-conditioner maker, has retreated from the carmaking industry.
The company, based in Ningbo, Zhejiang Province, was the latest in a series of companies that tried to break into the lucrative car industry but found it hard to survive in the weak market.
Aux, which rolled out its first vehicle in November 2003, said it will end its 50-million-yuan (US$6 million) car venture in the northeastern city of Shenyang, in which it holds an 80 percent stake.
"We won't pick up the car business again, at least for a long time," Aux spokesman Huang Jiangwei said.
"It's too difficult for private companies to get licenses to produce passenger cars.
"We couldn't see any clear timetable for private investors to be allowed in the passenger-car sector."
Aux is talking with dealers and spare-parts suppliers and it may lose all the 40 million yuan it invested, Huang said.
Private investors like Aux got their foothold in the auto industry by starting to build sport-utility vehicles or off-road vehicles one to two years ago, but having their eyes on the much more lucrative passenger cars.
"It's easier to get a license for SUV projects than for passenger-car production," said Zhang Xin, an auto analyst with Guotai Jun'an Securities Co.
China's weak demand for cars since the second half of last year has added to the difficulty of private auto companies. Car sales in China grew just 14 percent last year, down from the 76 percent in 2003 when the car market boom excited carmakers worldwide.
Aux, which produced two to three SUV models in its 18 months as a manufacturer, sold about 2,000 units last year.
That compared with its initial plan of 12,000 units by the end of last year and setting up an annual capacity of 30,000 units.
Aux is the only company that has failed to turn car dreams into reality.
Ningbo Bird Co Ltd, China's biggest homegrown cellphone maker, tried to move into the car industry by taking over part of a subsidiary under Nanjing Automobile Co last year, but later retreated.
Amoi Electronics Co Ltd, a major maker of home appliances, also said last year it would invest 175 million yuan in a 350-million-yuan car venture with Nanjing Auto, but abandoned the idea as auto profits declined.