INCREASED interest expenses on its inventory dragged Denway Investment into the red last year, but the carmaker is banking on reduced stock and big orders to turn it around. Last year, Denway's interest expenses rose to 40 million yuan (about HK$37.32 million), while its 46 per cent-owned associate Guangzhou Peugeot increased its payments to 150 million yuan, said executive vice-managing director Sam Pan Jinbo. According to Denway's 1993 annual report, it paid $26.6 million in interest on loans and debentures. Mr Pan said the rising interest payment was a result of misjudging last year's market situation, badly hit by a credit squeeze, which led to a growing stock of components and cars. At the end of last year, Denway's inventory reached more than $300 million, compared with $949.78 million at the end of 1993. It announced net losses of $148.6 million for last year, including its share of losses of $64.56 million from Guangzhou Peugeot. Mr Pan attributed the losses to reduced government subsidies, down to $45.5 million, compared with $105 million in 1993. The group had yet to receive any subsidy from the Guangzhou government this year. He said its costs rose because the group used bonuses to encourage staff to sell more cars. Excluding the interest costs, Mr Pan said Guangzhou Peugeot made 'marginal profits' on each car. Mr Pan said Guangzhou Peugeot's sales fared better in the first quarter than the last corresponding period. He expected it would produce more sedans this year with a big orders expected from a trade fair held in February. 'We will review the situation from time to time to decide the production,' Mr Pan said. Denway slashed production by 72 per cent to 5,726 units last year. He said Denway could turn into the black this year, assuming that China's economy continued to grow and car sales in the first quarter would be sustained for the remainder of the year.