Automaker profits surge in first quarter

By Xiao Han (China Daily)
Updated: 2010-05-17 13:10
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BEIJING - Most domestic carmakers reported surging profits in the first quarter this year as sales boomed, but experts say the windfall is not likely to continue.

According to statistics from the China Association of Automobile Manufacturers (CAAM), 17 major automakers had combined pre-tax profits of 82.4 billion yuan between January and March, a jump of 155 percent over the same period last year.

SAIC Motor Co ranked No 1 among listed car companies with net profit of 2.9 billion yuan.

The result was better even than BMW's full-year profit of 210 million euros ($279 million) in 2009.

Chongqing Chang'an Automobile Co's first-quarter sales leapt 86 percent.

FAW Car Co posted 182 percent increase in its first-quarter profit. Analysts said the surge is due to several factors including continued government incentives that boost sales in smaller cities, overall growth in the economy and recovery of car exports.

Investment in the auto industry rose by 32 percent in the first quarter to 58.4 billion yuan, according to the CAAM statistics.

Market data shows that in the first four months, vehicle sales in China reached 6.17 million units, up 61 percent from the same period last year. Analysts widely believe that full-year sales will increase by at least 10 percent to 15 million vehicles.

Many carmakers are eyeing the huge market potential and expanding capacity in China.

Sino-Japan joint venture Dongfeng Nissan Passenger Vehicle Co just began work on a new plant in Guangzhou earlier this month.

German giant Volkswagen also plans to build two new plants in China and introduce more new models at an investment of around 6 billion euros ($7.98 billion) in the next three years.

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But growth in car sales actually began to slow in April. Some 1.56 million vehicles were sold, a 10 percent decrease from March, according to CAAM.

Prices of locally made passenger vehicles in March and April edged down slightly, according to a survey by the National Development and Reform Commission.

Experts predict that automakers' profits are likely to reach their maximum in the second quarter and start to decline in the second half of this year.

A senior analyst noted that shrinking tax-cut incentives will cool the small car market and increasing stockpiles will drag down vehicle prices and profits.

The highly competitive market means an oversupply that will dampen sales and profits, he said.