April 6, 2017 / 8:50 AM / 10 months ago

China's SAIC Motor posts higher profit; cautions 2017 sales growth to slow

BEIJING (Reuters) - China’s largest automaker SAIC Motor Corp Ltd posted a 7.4 percent jump in 2016 profits, slightly lower than it had expected, and cautioned sales growth will slow this year as the country rolls back a tax cut on small-engine cars.

The Shanghai-based manufacturer, which makes cars in joint ventures with General Motors Co and Volkswagen AG in addition to own-brand vehicles, said its net profit totalled 32.0 billion yuan ($4.6 billion) last year.

This was below SAIC’s preliminary prediction for a 7.5 percent rise in 2016 profit.

SAIC’s revenue rose 12.8 percent to 756 billion yuan.

Demand for cars in China, the world’s biggest auto market, got a shot in the arm in 2016 as people rushed to buy ahead of a planned expiry at year-end of lower taxes. The tax cut - on vehicles with engines of 1.6 litres or below - mainly helped the mass market, smaller car segment where Volkswagen excels.

But sales are expected to come under pressure this year following an increase in the purchase tax on small-engine vehicles to 7.5 percent as of Jan. 1, from 5 percent in 2016. The tax will return to its normal level of 10 percent in 2018.

SAIC said the rush to buy cars before the hike in taxes could mean lower sales in 2017.

“After the blowout in (2016) auto market sales, it will be difficult to avoid an ‘overdraft’,” SAIC said in an exchange filing. “Market growth is facing greater challenges.”

SAIC on Wednesday said its vehicle sales rose 3 percent in the first three months of 2017. For the full year, the automaker aims to sell 6.7 million vehicles, up only about 3.8 percent from 2016, when sales saw a 10 percent growth.

China’s overall vehicle sales growth is expected to slow to 5 percent in 2017 from 13.7 percent last year, according to China’s automakers association.

Amid a more challenging domestic market, SAIC plans to continue pursuing new markets outside and said it had formally agreed to buy an Indian factory from General Motors.

GM had previously said it was moving forward with talks to sell its Halol plant in India’s western state of Gujarat to SAIC.

SAIC did not provide any further details in its filing.

“We continue to progress towards the sale of the Halol plant, as we consolidate manufacturing at our Talegaon plant,” GM told Reuters in an emailed statement, referring to a second India plant.

($1=6.8957 Chinese yuan renminbi)

Reporting by Jake Spring Additional reporting by Norihiko Shirouzu; Editing by Himani Sarkar and Clarence Fernandez

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