Dongfeng eyes 20pc sales growth despite rising interest rates

Dongfeng Motor Group, the mainland's third-biggest carmaker, wants to lift sales to between 1.1 million and 1.15 million vehicles this year as car-hungry consumers remain undeterred by rising interest rates.

Chairman Xu Ping said in Hong Kong yesterday that the mainland vehicle industry was still in high growth mode despite the government's tightening macroeconomic policies. Beijing is expected to raise interest rates at least twice this year to tackle rising inflation.

The sales target this year represents a 15 to 20 per cent increase on last year. In the first three months of the year, Dongfeng sold 270,000 units, a 30 per cent gain over the same period last year.

'The growth rate over the whole year could be slow and we expect shipments could grow 15 per cent year on year,' Mr Xu said in a press conference.

Along with other mainland carmakers, Dongfeng faces a tougher business environment because of rising raw material costs. Mr Xu said the company had already raised the selling price of medium duty trucks this month to reflect higher costs.

'We secured some raw material supplies last year as we expected costs would climb this year,' Mr Xu said. 'We expect overall raw material costs will be up 2 per cent this year.'

Dongfeng last year sold 950,000 units, up from 751,000 units in 2006. Of those, 70 per cent were passenger cars and 30 per cent commercial vehicles. The company plans to introduce nine new passenger car models this year, which could help it maintain profit margins as new models sold at a premium, Mr Xu said.

Dongfeng's net profit margin reached 6.4 per cent last year, up from 4.31 per cent in 2006.

Citigroup yesterday said Dongfeng would face the impact of rising steel and other production costs starting from the second quarter of this year and that could dent the commercial vehicles business.

'We reiterate our negative view on the Chinese car assembly sector and expect further downside due to the likelihood of a bigger than expected margin erosion,' Citigroup analyst Charles Cheung said in a research note yesterday.

Meanwhile, compact car maker Geely Automobile yesterday said capital expenditure for this year would total 1 billion yuan as it lifted production capacity.

'We will further boost our production capacity from 340,000 units now to around 500,000 units by the end of the year,' Geely chairman Li Shufu said. 'We expect our production capacity to reach 1 million units by 2010.'

Geely would also export more of its products, according to Mr Li. He said exports would grow to about 50,000 units this year from 20,000 units last year. 'We will export two thirds of our sedans and by 2015 our total export volume will hit 1.3 million units,' he said.

Geely's acquisition of more share capital from its four associates would be finished this year.