China Watch : SAIC Motor’s Q2 profit rises sharply as sales growth slows

Automotive News Europe/Reuters, 25th August, 2010

BEIJING/HONG KONG (Reuters) – Top Chinese automaker SAIC Motor’s second-quarter net profit jumped 266 percent to a record high due to demand fueled by Government incentives. But a slowdown in the world’s biggest auto market has raised concerns the company faces a bumpy road ahead.

Most Chinese auto groups from Dongfeng Motor Group Co. to Chongqing Changan Automobile Co. have been on a run since 2009 as incentives pushed auto sales to record levels. However, the frantic expansion has moderated since May, with the situation deteriorating further in June and July.

“The summer months are a big challenge for all industry players – it’s the slow season,” said Zhang Xin, an analyst with Guotai Junan Securities. “A slowing economy and last year’s high comparative base also make it difficult for anyone to match the runaway sales growth of a year ago in the second half.”

The summer months are a big challenge for all industry players – it’s the slow season. A slowing economy and last year’s high comparative base also make it difficult for anyone to match the runaway sales growth of a year ago in the second half.” Zhang Xin, Analyst, Guotai Junan Securities

SAIC Motor, which runs manufacturing ventures with Volkswagen AG and General Motors Co., is holding up relatively well due to its partners’ aggressive push for new models, which has helped attract buyers to showrooms, analysts said. The company’s broad portfolio of sedans, trucks, buses, SUVs, MPVs and minivans also makes it more resilient than peers who make only cars, they added.

The automaker sold 24.6 percent more vehicles in July than a year earlier, its slowest monthly gain so far this year but still far better than the overall market’s 14.4 percent rise.

In its stock exchange filing on Wednesday, SAIC Motor did not give earnings guidance for the second half or the full year. It warned about uncertainties ahead but also noted positive factors such as Beijing’s policy incentives which remain in effect through year’s end.

“Based on the favourable and unfavourable factors, we expect the domestic auto market to resume its stable and normal growth pattern this year,” SAIC Motor said. “Full-year vehicle sales (nationwide) will exceed 16 million units, up over 17 percent from a year earlier.”

Based on the favourable and unfavourable factors, we expect the domestic auto market to resume its stable and normal growth pattern this year. Full-year vehicle sales (nationwide) will exceed 16 million units, up over 17 percent from a year earlier.” An official SAIC Motor statement

Chairman Hu Maoyuan told shareholders last month that SAIC Motor is confident of hitting its 2010 sales target of 3 million vehicles. That would set SAIC Motor apart from Warren Buffett-backed BYD Co., which slashed its 2010 sales target by 25 percent after its June auto sales fell by about a one-fifth from May.

From April to June, SAIC Motor booked 3 billion yuan ($441.4 million) in net profit, its biggest quarterly earnings ever and a touch ahead of an average forecast of 2.9 billion yuan from three analysts surveyed by Reuters. Its year-ago quarterly earnings totaled 818.9 million yuan. The Shanghai-based automaker had said in July it expected a more than 300 percent jump in first-half earnings.

Before the results, SAIC Motor shares traded in Shanghai closed down 2.6 percent at 15.6 yuan, better than a 2.0 percent fall of the benchmark index. The stock has dropped 22.4 percent this year versus an 20.8 percent fall in the wider market.

[Source: Automotive News Europe/Reuters]

Clive Goldthorp

About the Author:

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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