Chinese automakers see profit margin decline

00-01-01 00:00　source:

　　The profit margin of Chinese automakers declined to 4 percent in 2005, below the average level of the entire manufacturing industry for the first time due to surging prices of raw materials and falling auto prices.

Chinese automakers earned approximately 21.2 billion yuan (US$2.62 billion) profit for 2005, a drop of 13.2 billion yuan from 2004. The drop in profit worsened to 38.4 percent last year from a decline of 18.3 percent in 2004 from 2003, according to the National Bureau of Statistics.

The profit loss has resulted in a decline of 4 percent in profit margin for Chinese automakers compared with the average level of 4.46 percent for the entire Chinese manufacturing industry for the first time.

In 2004, profit margin was recorded at 6.86 percent against 9.11 percent in 2003.

"This may indicate that the Chinese car industry is no longer reaping staggering profits as it is closer to the international standard following measures taken, including a further reduction in tariffs," said Jiang Yuan, an official from the Industrial and Transportation Division of NBS.

Li Jian, an auto analyst from Xiangcai Securities Co Ltd, said yesterday, "Mounting prices of raw materials and price cuts were the two most important reasons for the dampened profit amid a sales pickup. But the loss in profit is quite acceptable as the industry has gone through an explosive surge in its initial phase."

The statistics agency also estimated that a two-year profit decline is expected to end this year. Indeed, the agency sees profit revving up because the looming oversupply of raw materials such as steel and rubber may help to curb their excessive price rise.

But it is not possible to reach the high profit level seen two years ago.

International auto giants including General Motors Corp, Toyota Motor Corp and Hyundai Motor Corp have banked on China to be their most important profit source with cheap labor costs to make up for weak demand in their domestic markets.

The profit drop didn't stop or change the ambitions of international carmakers to maximize the huge potential of the Chinese market as most of their joint ventures expanded capacity to meet demand, Li said.

Chinese automakers produced 2.95 million cars for 2005, up 26.9 percent year-on-year.

The growth rate in the production capacity for the second half of last year hit 53.1 percent, 5.2 percentage points higher compared to the 47.9 percent for the first six months in 2005.

(Shanghai Daily)