Chinese auto firms headed for tougher times

By Zheng Lifei (China Daily)
Updated: 2009-05-06 19:56

The market share of the minivans and cars with engines smaller than 1.6 liters has reached 70.72 percent in the first three months, up 8 percentage points from the same period last year, according to CAAM.

"As the sales of minivans and smaller passenger cars increased in the overall auto market, their prices are likely to go down. But their profitability will not increase along with sales revenue," Guotai Jun'an's analyst Zhang Xin wrote in a note. The sharp price cuts initiated by carmakers in January to promote sales, analysts said, also contributed to their slumping profit margins in the first quarter.

But the intensifying industry competition will put pressure on auto prices in future.

"This year, the automobile industry will find itself in a situation where its sales may grow but profit will not," Huatai Securities said in a recent research note.

"Automakers who do not manage to increase their sales this year may be plunged into deep financial trouble," Guotai Jun'an's Zhang said in the note.

The falling prices of raw material in recent months, analysts said, may lift automakers' profit margin a little but warned that costs may go up again if the economy picks up pace.

Encouraged by the robust sales in the first quarter, especially in March, CAAM has raised its forecast for vehicles sales growth from the previous 5 percent to 8.7 percent this year, or 10.2 million units.

The country sold 9.38 million vehicles last year, up 6.7 percent from a year earlier, the first single-digit growth rate in a decade as the global economic downturn curbed consumer demand.

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