Intense price competition weighs on Denway first-half earnings

Denway Motors posted a net profit of HK$1.3 billion for the first six months, up a mere 0.4 per cent from a year earlier, due to price cutting among the nation's carmakers.

Analysts said the results at Denway, which has a 50-50 joint venture with Honda, were affected by weaker sales of the Accord. The Honda model faced stiff competition from Toyota's Camry which was introduced into the market last year.

Denway, the Hong Kong-listed vehicle of Guangzhou Automotive Industry Corp, said it would expand its distribution networks in the second half to boost sales.

Denway sold 133,167 cars in the first half, up 7.8 per cent from a year earlier. But growth at the company is far below that of the overall market. Car sales in the mainland rose 23.3 per cent to 4.3 million units.

To stay competitive, Honda has followed the price-cut trend, lowering the sticker cost of its Accord by between 7.5 per cent and 14.8 per cent. On average, car prices in the mainland fell about 2 per cent to 2.5 per cent in the first half. Analysts estimate that by the end of the year, car prices will have dropped 5 per cent.

Big carmakers such as General Motors and Volkswagen have been slashing prices since the beginning of the year to increase market share.

Analysts said large carmakers such as Shanghai Automotive Industry Corp and Chery, had a relatively stable market share. But smaller carmakers including Brilliance China Automotive Holdings, Denway and Geely Holding Group, had to put more emphasis on marketing, advertising and distribution.

In order to enlarge market share, Guangzhou Automotive Industry Corp teamed up with Honda in July to develop a yet-to-be named, mainland-branded car. They did not disclose a timetable for launching the first model.

Brilliance China chairman Qi Yumin in Dalian yesterday said that the company was planning to enter the US market by next year.

The company plans to sell 20,000 vehicles in the country, according to Bloomberg.

Mainland carmakers are boosting overseas sales to offset the negative impact of an intensely competitive domestic market.

Reflecting that competition, South Korea's Hyundai Motor was the first among foreign carmakers to cut its sales target for the mainland, admitting it was struggling with the price competition.

The company earlier lowered its sales target to 260,000 units for this year from a previous goal of 310,000.