August 21, 2012 / 9:02 PM / 5 years ago

Weak demand drags on Chinese carmakers, earnings growth stalls

BEIJING (Reuters) - Chinese automakers have had their toughest first half since the global financial crisis and the rest of this year looks set to be tougher still as the world's largest auto market sputters in a slowing economy.

State auto groups with strong foreign ties, such as domestic champion SAIC Motor Corp (600104.SS), can still deliver earnings growth, but others may find themselves locked in reverse gear, industry observers say.

"This is a tough year for all automakers, large or small. 2011 wasn't so good either because (government stimulus) incentives were gone, but it's much worse now as the economy is not doing so well," said Zhang Xin, an analyst at Guotai Junan Securities. "It's like a double whammy."

China's economy grew at its slowest pace in more than three years in the second quarter as demand at home and abroad slackened, confirming a downtrend that has full-year growth on course for its weakest in 13 years.

The China Association of Automobile Manufacturers is keeping to its forecast for a 5-8 percent rise in overall vehicle sales this year - a far cry from explosive growth of 46 percent and 32 percent in 2009 and 2010 respectively. January-July total vehicle sales rose just 3.6 percent after anemic growth of 2.5 percent in 2011, setting China up for its slowest back-to-back years of growth since the late 1990s.

Life for China's local brands is tough.

Geely Automobile Holdings Ltd (0175.HK), which reports half-year earnings later on Wednesday, and Great Wall Motor Co Ltd (2333.HK)(601633.SS) should hold up better than most as they have expanding export businesses, analysts say.

But Warren Buffett-backed BYD (1211.HK) (002594.SZ) has warned of a more than 50 percent slump in its January-June earnings, blaming weak car sales and continuous losses in its solar energy business. The safety of its electric car was also called into question after an e6 taxi caught fire in a fatal accident in May even though a probe showed the lithium-ion phosphate battery that powers the car did not explode after the collision.

And FAW Car 000800.SZ has predicted it could swing to as much as a 75 million yuan ($11.8 million) first-half net loss.

SAIC, which makes cars in China in partnership with General Motors (GM.N) and Volkswagen AG (VOWG_p.DE), the two largest foreign automakers in the market, could still achieve double-digit earnings growth in the second quarter, according to forecasts by three analysts - still a far cry from recent growth spurred by Beijing's stimulus measures. Earnings jumped by around a quarter last year when the Chinese economy appeared largely immune from the debt crisis seizing Europe.

Net income at Dongfeng Motor Group Co (0489.HK) - which makes cars in partnership with Nissan Motor (7201.T), Honda Motor (7267.T) and PSA Peugeot Citroen (PEUP.PA) - is seen flat in the first half as it is exposed to a steep downturn in heavy truck sales.

Geely is the second-best performer in the sector this year among 53 large- and mid-cap autos firms globally, with its share price rising 62 percent, Thomson Reuters StarMine data shows. Chinese automakers crowd the list of losers in the global auto sector, with shares in BYD, Dongfeng, SAIC and Brilliance China (1114.HK) among the worst performers so far this year.

LUXURY PRICE WAR

Even the popular German luxury brands have resorted to a price war this year as they look to hit ambitious sales targets in China - a move that may further cannibalize the sales and earnings of mass-market marques.

Buyers can drive home a brand new Toyota Corolla for 131,800 yuan, more than a third cheaper than two years ago. A Buick Excelle, ranked fourth on China's top selling list, can be had for just 76,900 yuan, after a 23 percent discount, according to cheshi.com, an industry website that tracks prices at more than 3,000 dealerships across China.

Both Toyota Motor (7203.T) and Nissan saw sales in China decline last month, [ID:nL4E8J71OE] and Changan Automobile Co 000625.SS blamed an estimated 44-49 percent drop in its first-half earnings on a smaller contribution from its car venture with Ford Motor (F.N) and Mazda Motor (7261.T).

"There are lots of uncertainties ahead," said John Zeng, Asia Pacific director for industry consultancy LMC Automotive. "The euro zone could continue to drag on the economy ... and the auto market could slow further if more cities start to restrict car sales."

Guangzhou's city government last month joined Shanghai, Beijing and Guiyang in capping car sales in an effort to ease chronic traffic congestion and pollution. [ID:nL3E8I109H] Xian, an inland city in the northwest, was forced to back down from a similar move after a public outcry. Other cities said to have at least considered restricting car sales include Chengdu, Hangzhou and Dalian.

($1 = 6.3594 Chinese yuan)

Reporting by Fang Yan and Don Durfee, with additional reporting by Anshuman Daga; Editing by Ian Geoghegan

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below