Cut-throat competition, overcapacity and raw material expenses dent profits Higher raw material costs and price wars cut the profits of China's carmakers last year for the third successive year, with Chery Auto making just 200 yuan to 300 yuan on each sale of its most popular model - the QQ, which accounts for 60 per cent of sales - according to figures published yesterday. Sector profits fell 38.4 per cent to 21.2 billion yuan, with margins down from 9.11 per cent in 2003 to 6.85 per cent in 2004 and 4 per cent last year, below the average of 4.46 per cent for all manufacturing, State Statistical Bureau data shows. The most profitable manufacturer per unit was Guangzhou Honda, which made 4.6 billion yuan last year, down from 5.7 billion in 2004, but with a margin of nearly 20,000 yuan on each of the 230,000 vehicles it produced. Shanghai General Motors also did well despite big price cuts, with a profit of 5.09 billion yuan, down 30 per cent on 2004, and an average unit profit of 4,400 yuan. The thinnest margins were Chery's, whose profit fell from 188 million yuan in 2004 to 95 million last year on output of 180,000 units, up from 100,000 - an average profit of 500 yuan per vehicle sold. The main reasons for the fall in profits were a rise in costs of raw materials and price wars. Rao Da, secretary general of the China Passenger Car Association, said only a handful of passenger car makers ended in the red last year. 'The first half of 2005 was the most difficult, but pressure eased during the second half as prices stabilised and sales picked up. The firms worked hard to cut costs, totalling about 10 billion yuan for the whole year,' he said. The China Association of Automobile Manufacturers has predicted total output and sales this year of more than 6.4 million units, 12 per cent up on last year, with passenger car output rising 17 per cent. Last month, car sales soared more than 70 per cent year on year to 340,000 units. General Motors ranked first, Volkswagen second. Chery was the top local carmaker. The State Development and Reform Commission says the industry is 'overheated', with overcapacity of two million units, a further 2.2 million units being built and a further eight million in the pipeline.