Chery Automobile

Easing price war lifts profits at carmakers

PUBLISHED : Thursday, 29 June, 2006, 12:00am
UPDATED : Thursday, 29 June, 2006, 12:00am

China's vehicle industry enjoyed an excellent first five months of the year, with sales increasing nearly 30 per cent and profits up more than 70 per cent but rising inventories and threats of a price war bode for a leaner second half, according to official figures published yesterday.

The State Development and Reform Commission said the industry posted profits of 28.4 billion yuan, the best five-month result in three years and a 70.8 per cent improvement over the year-ago period.

Vehicle sales rose 30.6 per cent to 3.26 million, including 1.67 million cars, a rise of 60.1 per cent.

The commission said that the rise in profits was due to an easing of the price wars of the past two years. Sales of commercial vehicles also continued to recover and costs of raw materials, especially steel and petroleum, decreased.

But the second half will not be as good as the first. One reason is inventories which reached 100,360 vehicles at the end of last month from 68,633 at the end of last year.

Worst hit was Shenlong Auto, which had 14,827 vehicles in stock at the end of last month, followed by Dongfeng Nissan with 11,173 and First Auto Works with 11,083.

Xu Changming, deputy director of the information resources division at the State Information Centre, said that the vehicle market was better in the first half of this year than last year but would deteriorate in the second half.

'The inventories rose because makers over estimated the market, especially for large cars. The makers will be forced to cut prices to reduce these stocks, with Shenlong Auto firing the first shot last week,' he said.

The most successful domestic company this year has been Chery Automobile which forecasts full-year sales of 300,000 compared with 189,400 last year. Its QQ compact, which sells for as little as 29,800 yuan, has been a hit with those worried about high oil prices.

Chery vice-president Jin Yibo said the firm had been in talks with DaimlerChrysler about joint production of cheap cars. The company is also preparing for an initial public offering.

Chery is planning to move its research and development, logistics and sales divisions to Jiading on the outskirts of Shanghai, industry sources said. Chery wants to move because of the difficulty of persuading skilled designers and specialists to work at its headquarters in Wuhu, Anhui province.